When Option B is compared with Option C,
DJDC Machinery has been making a part for its industrial rotary gear shaving machine. The engineers are asked to investigate alternative ways of obtaining the part, as the unit cost for the part currently is not competitive in the marketplace. DJDC needs 25,000 parts per year for the next three years. At that point, any capital equipment could be sold. DJDC tax rate is 40%, and its interest rate is 12%.
• Option A: Continue to produce the part with the old machine. The machine has been fully depreciated. The current machine could be sold for $6,000 in three years. Making the part with the old machine involves the following: Variable costs for the part are $4 for direct materials, $3 for direct labor, and $2 for variable manufacturing
• Option B: Purchase the part from outside for $13 per part, including shipping.
• Option C: Replace the old machine with the new model. The newer model would cost $55,000 and would
When Option B is compared with Option C, determine the break-even outsourcing cost per unit.
Step by step
Solved in 2 steps
