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% 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?
Definitions:
Lead(II) Nitrate
A white to colorless crystalline chemical compound used in making other lead compounds and some pyrotechnics.
Sodium Chloride
A white crystalline compound known as table salt, widely used in food seasoning and preservation; its chemical formula is NaCl.
Lead(II) Chloride
A chemical compound with the formula PbCl2, known for its white crystalline appearance and poor solubility in water.
Saturated Solution
A solution that contains the maximum amount of solute that can be dissolved in a solvent at a given temperature and pressure.
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