Fuchs Boats Company currently produces a battery used in manufacturing its boats. The company annually manufactures and sells 5,000 units of a particular model of fishing boat. Because of the low volume of activity, Fuchs is unable to obtain the economies of scale that larger producers achieve. For example, the costs associated with producing the batteries it uses are almost 30 percent more than the cost of purchasing comparable batteries. Fuchs could buy batteries for $430 each; it costs $550 each to make them. A detailed breakdown of current production costs for the batteries follows:

Based on these figures, Fuchs’ president asserted that it would be foolish for the company to continue to produce the batteries at $550 each when it can buy them for $430 each.

Do you agree with the president’s conclusion? Support your answer with appropriatecomputations.

  • CreatedFebruary 07, 2014
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