Truman Company Assembles Products from a Group of Interconnecting Parts

question 111

Essay

Truman Company assembles products from a group of interconnecting parts.The company produces some of the parts and buys some from outside vendors.The vendor for Part Y has just increased its price by 35%,to $5 per unit for the first 5,000 units and $4.50 per additional unit ordered each year.The company uses 7,500 units of Part Y each year.Unit costs if the company makes the part are as follows:
Should Truman Company continue to purchase Part Y or begin making it?

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Definitions:

Disposable Income

The sum of funds households can spend and save after deducting income taxes.

APS

Average Propensity to Save, which measures the proportion of income that is saved rather than spent.

Capacity Utilization Rate

The percentage of a firm's total potential production capacity that is actually being utilized in the production of goods or services.

Manufacturing Firms

Companies engaged in the industrial process of converting raw materials into finished products through human labor and machinery.