Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Junior Company that a 20 percent increase will take effect next year.Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
If the units are purchased from the supplier,$200,000 of fixed costs will continue to be incurred.In addition,the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required: Should Junior Company buy the part externally or make it internally?

Question

Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Junior Company that a 20 percent increase will take effect next year.Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
  If the units are purchased from the supplier,$200,000 of fixed costs will continue to be incurred.In addition,the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required: Should Junior Company buy the part externally or make it internally?

Quizplus · Accepted Answer

The Answer of Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Junior Company that a 20 percent increase will take effect next year.Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
  If the units are purchased from the supplier,$200,000 of fixed costs will continue to be incurred.In addition,the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required: Should Junior Company buy the part externally or make it internally?

Junior Company Currently Buys 30,000 Units of a Part Used