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:
Qualitative Improvement
Refers to enhancements in the quality or nature of something rather than its quantity.
Adolescence
A developmental stage that marks the transition from childhood to adulthood, characterized by physical, psychological, and social changes.
Postconventional Level
According to Kohlberg, a period during which moral judgments are derived from moral principles, and people look to themselves to set moral standards.
Moral Development
The process by which individuals learn to differentiate right from wrong and develop principles of ethical behavior over time.
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