Chapter $5,$ Problem $8$ per unit for the first $1,000$ units and $$19$ per unit for additional units.

If the manager anticipates an annual volume of no more than $1,000$ units, which alternative would be best from a cost standpoint?

Internal option $1$

Internal option $2$

Vendor A

Vendor B

Vendor C

QUESTION $8$

Chapter $5,$ Problem $8$

A manager is trying to decide whether to purchase a certain part or to have it produced internally. Internal production could use either of two processes. one would entail a variable cost of $$17$ per unit and an annual fixed cost of $$200,000$; the other would entail a variable cost of $$14$ per unit and an annual fixed cost of $$240,000.$ Three vendors are willing to provide the part. Vendor A has a price of $$20$ per unit for any volume up to $30,000$ units. Vendor B has a price of $$22$ per unit for demand of $1,000$ units or less, and $$18$ per unit for larger quantities. Vendor $C$ offers a price of $$21$ per unit for the first $1,000$ units and $$19$ per unit for additional units.

What annual volume will make Vendor $C$ the best choice?

less than $999$

$1,000$ to $59,000$

more than $60,000$

Vendor $C$ will never be the optimal choice