Question

Piedmont Industries currently manufactures 40,000 units of part JR63 each month for use in production of several of its products. The facilities now used to produce part JR63 have a fixed monthly cost of $165,000 and a capacity to produce 74,000 units per month. If the company were to buy part JR63 from an outside supplier, the facilities would be idle, but its fixed costs would continue at $45,000. The variable production costs of part JR63 are $12 per unit.

Required:
1. If Piedmont Industries continues to use 40,000 units of part JR63 each month, it would realize a net benefit by purchasing part JR63 from an outside supplier only if the supplier’s unit price is less than what amount?
2. If Piedmont Industries is able to obtain part JR63 from an outside supplier at a unit purchase price of $14, what is the monthly usage at which it will be indifferent between purchasing and making part JR63?
(CMA, adapted)



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  • CreatedApril 22, 2014
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