Answer Happy

Problem 2: Break-even/CVP Analysis (Chapter 8 - Sections 8.1 and 8.2, and Class Notes) - 10-points. As a production manager, you are evaluating the evaluating the option of buying a circuit board from a supplier as opposed to making it in-house. The process you supervise uses 5,000 of the circuit boards per year, and a supplier has quoted a price of $25 per unit based on this annual requirement. The make option has a cost of $5 per unit, if equipment costing $150,000 is purchased. Operating costs for the equipment are estimated to be $35,000 increasing by 5 percent per year over the expected 5-year life of the equipment. The equipment will require a $22,500 refurbishment at the end of the third year of operation Salvage is estimated at 10% of the first cost. Based on the annual requirement for 5,000 circuit boards, which option should you recommend? I