Junior Company Currently Buys 30,000 Units of a Part Used

question 70

Essay

Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit.Recently the supplier informed Junior Company that a 20 percent increase will take effect next year.Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):
If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred.In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally.
Required:
Should Junior Company buy the part externally or make it internally?

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Definitions:

Syndesmosis

A type of fibrous joint in which bones are joined together by long collagen fibers, allowing for limited movement.

Cartilaginous Joint

A type of joint in the body where the bones are joined together by cartilage, allowing for limited movement.

Cartilaginous Joints

Joints where the bones are attached by cartilage, allowing more limited movement than a synovial joint.

Cartilage

A flexible connective tissue found in various parts of the body including the joints, rib cage, and ear, providing support and cushioning.