Question

Questions 1 to 3 for Vista Company

Vista Company manufactures electronic equipment. In 2018, it purchased from an outside supplier the special switches used in each of its products. The supplier charged Vista $2.3 per switch. As an alternative, Vista's CEO considered purchasing either machine A or machine B so the company could manufacture its own switches. The CEO decided at the beginning of 2019 to purchase machine A, based on the following data: Annual fixed cost (depreciation) Variable cost per switch Machine A $171,000 0.80 Machine B $215,000 0.50 Required: 1. Assume that machine A has not yet been purchased. What is the annual volume that would make the company indifferent between the two decision alternatives (.e., purchasing and then using machine A to make the switches versus purchasing the switches from the outside vendor)? 2. Assume that machine A has already been purchased. Is it preferable to use machine A to make the switches or to purchase the switches from the external supplier? 3. Assume that machine A has already been purchased. At what annual volume level should Vista consider replacing machine A with machine B?

Answer 1

10 let Assume the units at level of indifference fined + 171,000 + variable = (0.808 se) = Total (2.3 x w) => 2.3 x - 0.8u = 171,000 x = 171,000 0.5 x = x= 342000 units ! 342000 units It is because as switches ceads preferable to use machine Al the manufacturing of increases Economy of scale to lower the cost, Let company the level at which consider to replace with machine (B) = cul machine CAZ 4 units 4 VUOVUUUUUTTTTTTT 215,000+ 0.5gr 171,000+ 0.84 44,000 co.3y Ty > 146667 units]