Junior Company Currently Buys 30,000 Units of a Part Used

question 133

Essay

Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Junior Company that a 20 percent increase will take effect next year.Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
If the units are purchased from the supplier,$200,000 of fixed costs will continue to be incurred.In addition,the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required: Should Junior Company buy the part externally or make it internally?

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Definitions:

Diffusion of Responsibility

A sociopsychological phenomenon where individuals are less likely to take action or feel a sense of responsibility in the presence of a large group of people.

Bystanders

Individuals who are present at an event or incident but do not take part.

Authority

The power or right to give orders, make decisions, and enforce obedience, often associated with a position of leadership or governance.

Obedience

The act of following orders or commands from someone in authority, often studied in social psychology.