Variable and Fixed Costs; Make or Buy a Component
Hoboken Industries currently manufactures 30,000 units of part MR24 each month for use in production of several of its products. The facilities now used to produce part MR24 have a fixed monthly cost of $150,000 and a capacity to produce 84,000 units per month. If the company were to buy part MR24 from an outside supplier, the facilities would be idle, but its fixed costs would continue at 40 percent of their present amount. The variable production costs of part MR24 are $11 per unit.
Required:
1. If Hoboken Industries continues to use 30,000 units of part MR24 each month, it would realize a net benefit by purchasing part MR24 from an outside supplier only if the supplier's unit price is less than what amount?
2. If Hoboken Industries is able to obtain part MR24 from an outside supplier at a unit purchase price of $12,875, what is the monthly usage at which it will be indifferent between purchasing and making part MR24?
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