Simuelson Industries Can Produce Its Own Motors for a $60,000

question 87

Essay

Simuelson Industries can produce its own motors for a $60,000 fixed monthly cost and a $50 variable cost per unit. Alternatively, Simuelson Industries can purchase the motors from an outside supplier for $50,000 per month and $58 per unit.
a) What is the indifference point?
b) What option should be chosen if monthly demand is 1200 units?

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Definitions:

Business Combination

A transaction or event where an acquirer gains control over one or more businesses, often through the acquisition of equity interests or assets.

Common Stock

Shares entitling their holders to dividends that vary in amount and may even be missed, depending on the fortunes of the company.

Fair Value

A financial accounting term referring to the estimated market value of an asset, liability, or company.

Par Value

The nominal or face value of a bond, stock, or other financial instrument, originally intended to be the minimum price at which the securities could be sold.