Each Year,Mother Company Purchases 8,000 Units of a Part That

question 101

Essay

Each year,Mother Company purchases 8,000 units of a part that it needs for production of its product.The supplier notified Mother Company that a price increase will take effect shortly,which will bring the price of the part to $25 per part.Mother Company is considering the use of idle facilities to produce the part.The annual production costs to produce the needed 8,000 parts are as follows:
The idle facilities could also be rented out at an annual rent of $99,000.All the fixed indirect production costs are avoidable.
Required:
Determine if Mother Company should buy the part or produce it internally.

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Definitions:

Break-even Volume

The number of units that must be sold to cover all costs, after which point profitability begins.

Prospects Office

The workplace or business location of a potential customer or client who may be interested in purchasing goods or services.

Appointment Time

The scheduled date and time agreed upon for a meeting or sales call between a salesperson and a potential client.

Non-selling Time

A period where sales activities are not being performed, often involving administrative or preparatory work.