Scenario 12.1
You currently make a part on old equipment at a cost of $50,000 per year and a variable cost of $20 / unit. You have found an outside supplier who will make the part for $15 / unit if you will pay their annual fixed costs of $200,000 / year. The following table summarizes the details of this make versus buy decision.

-Use Scenario 12.1 to answer the question. What is the break even quantity between buying and making?
A) 30,000 units per year
B) 40,000 units per year
C) 50,000 units per year
D) 60,000 units per year

Question

Scenario 12.1
You currently make a part on old equipment at a cost of $50,000 per year and a variable cost of $20 / unit. You have found an outside supplier who will make the part for $15 / unit if you will pay their annual fixed costs of $200,000 / year. The following table summarizes the details of this make versus buy decision.
 
-Use Scenario 12.1 to answer the question. What is the break even quantity between buying and making?
A) 30,000 units per year 
B) 40,000 units per year 
C) 50,000 units per year 
D) 60,000 units per year

Quizplus · Accepted Answer

The break-even quantity is the point at which the total cost of buying is equal to the total cost of making. In this case, the total cost of buying is $1,200,000 + $0.10x, and the total cost of making is $800,000 + $0.20x. Setting these two equations equal to each other, we get:1,200,000 + 0.10x = 800,000 + 0.20x0.10x = 400,000x = 40,000 units per year

Scenario 12.1 You Currently Make a Part on Old Equipment at a at a Cost