Question: H LTd has been making a part for its end product for years. The unit cost of producing 10,000 units last year was as follows:

H LTd has been making a part for its end product for years. The unit cost of producing 10,000 units last year was as follows:

Direct material $2.10

Direct labour 4.60

Supervision salary (avoidable, fixed) 3.60

Depreciation 1.80

Variable factory overhead 1.30

Other allocated fixed factory overhead 2.25

The company has received an offer to supply their annual requirements from a Korean company at $12 per unit. If the offer is accepted, the machinery will be scrapped.

Question

At what level of production would the company be indifferent between making and buying?

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