Question

Hahn Manufacturing purchases a key component of one of its products from a local supplier. The current purchase price is $1,500 per unit. Efforts to standardize parts succeeded to the point that this same component can now be used in five different products. Annual component usage should increase from 150 to 850 units. Management wonders whether it is time to make the component in-house, rather than to continue buying it from the supplier. Fixed costs would increase by about $60,000 per year for the new equipment and tooling needed. The cost of raw materials and variable overhead would be about $1,000 per unit, and labor costs would be $350 per unit produced. a. Should Hahn make rather than buy? Hahn should make the components, saving $67500 per year as compared to the other decision. (Enter your response rounded to the nearest whole number.) b. What is the break-even quantity? The break-even quantity is 400 units. (Enter your response rounded to the nearest whole number.) c. What other considerations might be important? Since Hahn would be ordering 850 units instead of 150, they can count on a discount from the supplier. The discount of at least swould make the "buy" decision better than the "make aiternative. (Enter your response rounded to the nearest whole number.)

Answer 1