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:

Level of Significance

A predetermined threshold in hypothesis testing, below which the null hypothesis is rejected, indicating statistical significance.

Null Hypothesis

A hypothesis that assumes no significant difference or relationship exists in the general population from which a sample is drawn.

Variance

A measure of the dispersion of a set of data points around their mean; the square of the standard deviation.

Level of Significance

The probability threshold below which the null hypothesis is rejected in hypothesis testing, typically denoted by alpha (α).