Scenario 2.6
You currently purchase a part used in your production process from an outside supplier,and have decided to begin making this part in-house.You have two equipment options for moving production in-house: special-purpose equipment and general-purpose equipment.Cost information for these two options is as follows:

-Use Scenario 2.6 to solve this mystery.At an annual requirement of 40,000 units,what does the company save per year by selecting the low-cost option?
A)$150,000
B)$300,000
C)$50,000
D)$40,000

Question

Scenario 2.6
You currently purchase a part used in your production process from an outside supplier,and have decided to begin making this part in-house.You have two equipment options for moving production in-house: special-purpose equipment and general-purpose equipment.Cost information for these two options is as follows:
 
-Use Scenario 2.6 to solve this mystery.At an annual requirement of 40,000 units,what does the company save per year by selecting the low-cost option?
A)$150,000 
B)$300,000 
C)$50,000 
D)$40,000

Quizplus · Accepted Answer

To determine the cost of each option per unit, we divide the annual cost by the number of units produced per year:

For special-purpose equipment: $640,000/40,000 = $16 per unit 
For general-purpose equipment: $760,000/40,000 = $19 per unit

Therefore, the company can save $3 per unit by selecting the low-cost option (special-purpose equipment) over the high-cost option (general-purpose equipment).

To calculate the total annual savings, we multiply the savings per unit by the number of units produced annually:

$3 saved per unit x 40,000 units = $120,000 saved per year

Therefore, the company saves $120,000 per year by selecting the special-purpose equipment over the general-purpose equipment, which is closest to option C ($50,000).

Scenario 2.6 You Currently Purchase a Part Used in Your Production Process