If a company needs 200,000 units of a component for the next 5 years, which of the
Question:
If a company needs 200,000 units of a component for the next 5 years, which of the following scenarios would best suit managerial decision?
1) The company can purchase machinery costing $675,000 and be able to make the units itself for a cost of $.65 each. (This machine would have a 5-year life with no salvage, so would result in $135,000 fixed cost, straight-line depreciation each year.) Cash costs to operate and maintain the machine would be $10,000 per year for each of the 5 years.
2) The company can purchase machinery costing $1,020,000 and be able to make the units itself for a cost of $.30 each. (This machine would have a 5-year life with no salvage, so would result in $204,000 fixed cost, straight-line depreciation each year.) Cash costs to operating and maintain this
machine would be $12,000 per year for each of the 5 years.
