Fielder Company is currently purchasing a component for $13 but is considering making the part internally. The plant engineer has suggested two alternatives. The first alternative would increase fixed costs by $12,000 per month and incur variable costs of $9 per part. The second alternative would increase fixed costs by $20,000 and incur variable costs of $7 per part.

REQUIRED

A. What level of volume is necessary to justify making the part?

B. Over what relevant ranges of volume is each alternative optimal?

C. At a level of output of 3,500 units, which alternative is most profitable?

D. List two qualitative or risk factors that could affect this decision.