Question

A company that produces toys, buys the electric unit for a train it is manufacturing at $ 8.00 / unit. Suppose he can manufacture a unit equivalent to a variable cost of $ 4.00 / unit. It is estimated that the additional fixed cost at the plant would be $ 12,000 / year if the electronic unit were manufactured there. What is the solution?

Una empresa que produce juguetes, compra la unidad eléctrica para un tren que está fabricando a $8.00/unidad. Suponga que él puede fabricar una unidad equivalente a un costo variable de $4.00/unidad. Se estima que el costo fijo adicional en la planta seria de $12,000/año si la unidad electrónica se fabricase allí. ¿Cuál es la solución?

Answer 1

The inputs provided in the question are:

> Buy price of a electric unit : $8.00/unit

> Variable cost if manufactured on own : $4.00/unit

Additional fixed cost if manufactured on own : $12000/year

Solution
In a make or buy decision for a product, the buy cost and make cost is compared. The cost which is lower is beneficial to the company.
In the costs to make, all relevant costs are added. Relevant cost include Variable Cost, Direct Fixed Cost and Avoidable fixed cost.
In the question given, Variable cost is $4.00/unit. As the question does not specifies the number of units, fixed cost per unit is not directly determinable.

To conclude
a) Make cost = $4.00/unit + $12000 divided by the total number of units
b) Buy cost= $8.00/unit

The lower of a or b is the answer and the company will make the decision accordingly.