Question 2

Intuit has discovered that a small fitting unit it now manufactures at a total cost of $1.00 per unit could be bought elsewhere for $0.87 per unit.

Of its total cost per unit, fixed costs amount to $0.20 per unit, of which $0.05 per unit can be eliminated or avoided if Intuit buys this unit.

Intuit needs 460,000 of these units each year.

If Intuit decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company, saving the company $10,000.

Given the information above:

1. Without considering the possibility of making the timing unit, evaluate whether Intuit should buy or continue to make the small fitting.
2. Considering the possibility of making of the timing unit (opportunity cost), would your decision from a) change?