A Firm Currently Makes a Component, and Requires 30 000

question 58

Multiple Choice

A firm currently makes a component, and requires 30 000 for the coming year's production. Another supplier has offered the part at a delivered price of $3 per unit. It would cost $3000 to check purchased units for quality. Product costs per unit for the past year were $2.35 variable and $1 fixed based on 30 000 units. If the component was bought, fixed overhead would be reduced by $6000, the cost of leasing specialised equipment. The space vacated by the equipment can be rented for $4000 for the year. At what level of units of production is the firm indifferent between making and buying?

• A) 30 000 units
• B) 10 769 units
• C) 4615 units
• D) 20 000 units