A company can produce an item or buy it from a contractor. If it is produced, it will cost $20 each time the machines are set up. The production rate is 100 units per day. If it is bought from a contractor, it will cost $15 each time an order is placed. The cost of maintaining the item in stock, whether bought or produced, is $.02 per unit per day. The company's usage of the item is estimated at 26,000 units annually. Assuming that no shortage is allowed, should the company buy or produce?

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Cost of production if item is produced 20100 units ... View the full answer