Zahrt Company Manufactures a Part for Its Production Cycle

question 52

Essay

Zahrt Company manufactures a part for its production cycle. The costs per unit for 10,000 units of this part are as follows: The Company has been approached by a supplier who claims it can sell Zahrt 10,000 units of the same part for $840,000.
Required:
a. Assuming there is no alternative use for the facilities, should Zahrt buy the part, and if so, how much money would be saved?
b. Assuming the facilities can be rented out for $110,000 per year, should Zahrt buy the part, and if so, how much money would be saved?

---

Definitions:

Factory Equipment

Fixed assets used in manufacturing processes, such as machinery and tools, necessary for producing goods.

Variable Cost

Outlays that are tied to the level of output or sales, including expenditures on materials and labor.

Cotton

A natural fiber harvested from the cotton plant, widely used in the textile industry for fabric production.

Polyester Cloth

A type of fabric made from polyester fibers, known for its durability, resistance to stretching and shrinking, and quick drying properties.