Question 1 3 pts The Green Machine Manufacturing Company has

Question 1 3 pts The Green Machine Manufacturing Company has the option to make or buy a component part for one of its lawnmowers. The annual requirement is 25,000 units. A supplier is able to supply the parts for $12.25 per piece. Green Machine estimates that it will cost $700 to prepare the contract with the supplier. To make the parts in-house, Green Machine must invest S100,000 in capital equipment. They estimate it will cost $9.00 per piece to produce the part in-house. Carry all calculations out to two decimal places. What is the breakeven quantity? O Less than or equal to 30,000 O Greater than 30,000 but less than or equal to 35,000 O Greater than 35000 but less than or equal to 40,000 Greater than 40,000 but less than or equal to 45,000 Greater than 45,000

Solution

To buy from the supplier fixed cost(FC) = $700 and variable cost(VC) = $12.25 per piece

To make in-house, fixed cost(FC) = $100000 and variable cost(VC) = $9 per piece

The break even quantity is the quantity at which both the process will have the equal total cost

Suppose the break even quantity is Q

Total cost to buy = Total cost to make

=> FC + Q(VC) = FC + Q(VC)

=> 700 + 12.25Q = 100000 + 9Q

=> 12.25Q - 9Q = 100000 - 700

=> 3.25Q = 99300

=> Q = 99300/3.25

=> Q = 30554

So the break even quantity is 30554

So the answer is greater than 30000 but less than or equal to 35000