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A firm's manager must decide whether to make or buy a certain item used in the production of 71 vending machines. Making the item would involve annual lease costs of $150,000). Cost and volume estimates are as follows: on 13e Make Annual fixed cost Variable cost/unit Annual volume (units) $150,000 $ 60 12,000 Buy None $ 80 12,000 a. Given these numbers, should the firm buy or make this item? b. There is a possibility that volume could change in the future. At what volume would the manager be indifferent between making and buying? n a. Determine the annual cost of each alternative: Total cost = Fixed cost + Volume x Variable cost Make: $150,000 + 12,000($60) = $870,000 0 + 12,000($80) = $960,000 Buy: = Because the annual cost of making the item is less than the annual cost of buying it, the manager would reasonably choose to make the item. Note: If the unit cost to buy had been less than the vari- able cost to make, there would be no need to even consider fixed costs; it would simply have been better to buy b. To determine the volume at which the two choices would be equivalent, set the two total costs equal to each other and solve for volume: TCmake = TCbuy. Thus, $150,000 + Q($60) = 0 + Q(580). Solving, Q = 7,500 units. Therefore, at a volume of 7,500 units a year, the manager would be indif- ferent between making and buying. For lower volumes, the choice would be to buy, and for higher volumes, the choice would be to make