A Manufacturer Has a Choice of Purchasing and Installing a Heat-

question 25

Essay

A manufacturer has a choice of purchasing and installing a heat- treating oven or having the heat treating done by an outside supplier. For the in- house treatment the fixed costs are $28,000 with a variable cost of $10. To purchase outside, the variable costs are $17 per unit.
What is the cost equalization point. Should the company have the heat treating done outside if the annual volume is 3,000 units? 5,000 units?

---

Definitions:

Markdown

A reduction from the original or previous selling price of goods or services.

Breakeven

The juncture where total expenses match total income, leading to neither a net profit nor a loss.

Mark-up

A financial addition to the product's cost to cater to company overheads and profit gain.

Wholesaler

An individual or entity that buys goods in large quantities from producers to resell them to retailers or directly to customers, but typically not to the final consumer.