You are asked to recommend whether a firm should make or purchase product A. The following are data concerning the two options. For the purchase option, the firm can buy product A at $18 per unit. For the make option, the firm can produce product A based on the following cost estimation data. The firm has to pay a weekly rental payment of $9,600 for the production facility. With the use of this facility, the firm also has to hire five operators to help make product A. Each operator works eight hours per day, five days per week at the rate of $8 per hour. In other words, the rental and labor expenses are fixed costs. The material cost for the make option is $14 per unit of product A. a. Find a weekly amount of product A that provides the breakeven point for the firm. The breakeven point in this problem indicates the firm's indifference between purchasing or making product A. b. If the firm estimates the sale of product A to be 2,200 units per week, should it make or purchase product A? a. A weekly amount of product A that provides the breakeven point for the firm is week. (Round to the nearest whole number.) b. If the firm makes 2,200 units per week, the total cost will be $ nearest dollar.) If the firm purchases 2,200 units per week, the total cost will be $ nearest dollar.) The firm should product A purchase make (Round to the (Round to the units per
You are asked to recommend whether a firm should make or purchase product A. The following are data concerning the two options. For the purchase option, the firm can buy product A at $18 per unit. For the make option, the firm can produce product A based on the following cost estimation data. The firm has to pay a weekly rental payment of $9,600 for the production facility. With the use of this facility, the firm also has to hire five operators to help make product A. Each operator works eight hours per day, five days per week at the rate of $8 per hour. In other words, the rental and labor expenses are fixed costs. The material cost for the make option is $14 per unit of product A. a. Find a weekly amount of product A that provides the breakeven point for the firm. The breakeven point in this problem indicates the firm's indifference between purchasing or making product A. b. If the firm estimates the sale of product A to be 2,200 units per week, should it make or purchase product A? a. A weekly amount of product A that provides the breakeven point for the firm is week. (Round to the nearest whole number.) b. If the firm makes 2,200 units per week, the total cost will be $ nearest dollar.) If the firm purchases 2,200 units per week, the total cost will be $ nearest dollar.) The firm should product A purchase make (Round to the (Round to the units per
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter8: Cost Analysis
Section: Chapter Questions
Problem 6E
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Transcribed Image Text:You are asked to recommend whether a firm should make or purchase product A. The following
are data concerning the two options. For the purchase option, the firm can buy product A at $18
per unit. For the make option, the firm can produce product A based on the following cost
estimation data. The firm has to pay a weekly rental payment of $9,600 for the production
facility. With the use of this facility, the firm also has to hire five operators to help make product
A. Each operator works eight hours per day, five days per week at the rate of $8 per hour. In
other words, the rental and labor expenses are fixed costs. The material cost for the make
option is $14 per unit of product A.
a. Find a weekly amount of product A that provides the breakeven point for the firm. The
breakeven point in this problem indicates the firm's indifference between purchasing or making
product A.
b. If the firm estimates the sale of product A to be 2,200 units per week, should it make or
purchase product A?
a. A weekly amount of product A that provides the breakeven point for the firm is
week. (Round to the nearest whole number.)
b. If the firm makes 2,200 units per week, the total cost will be $
nearest dollar.)
If the firm purchases 2,200 units per week, the total cost will be $. (Round to the
nearest dollar.)
The firm should
product A.
purchase
make
(Round to the
units per
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