A Manufacturer Has a Choice of Purchasing and Installing a Drilling

question 5

Essay

A manufacturer has a choice of purchasing and installing a drilling machine having the drill work done by an outside supplier. For the in- house drilling the fixed costs are
$100,000 with a variable cost of $12. To purchase outside, the variable costs are $20 per unit.
What is the cost equalization point. Should the company have the heat treating done outside if the annual volume is 1,000 units? 10,000 units?

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Definitions:

Credit Ratings

Assessments of the creditworthiness of both borrowers (including governments, businesses, and individuals) and financial instruments, expressed through a grading system.

Callable

Describes a financial security (like a bond) that can be redeemed or "called" by the issuer before its maturity date, usually at a predefined price.

Convertible

Refers to a security (like bonds or preferred shares) that can be converted into a different form, commonly shares of the company's common stock.

Secured

Refers to loans or debt that are backed by collateral, reducing the risk for lenders.