Use this scenario to answer the following questions.
A company must decide if it will make or buy an item it needs. The company can make the item for $10 per unit, but must invest $15,000 in tooling to achieve that capability. Alex Rogo has quoted a total price of $12 per unit to supply the quantity required (assume their fixed costs are included in the quoted price).
-Refer to the instruction above. What is the break-even quantity in this situation?
A) 6,500 units
B) 7,000 units
C) 7,250 units
D) 7,500 units

Question

Quizplus · Accepted Answer

The break-even quantity is calculated by dividing the fixed costs by the difference in unit costs between making and buying. Here, the fixed costs are $15,000, and the difference in unit costs is $2 ($12 - $10). So, the break-even quantity is $15,000 / $2 = 7,500 units.

Use This Scenario to Answer the Following Questions