Reference no: EM13906756
Vista Company manufactures electronic equipment. It currently purchases from an outside supplier the special switches used in each of its products. The supplier charges Vista $2 per switch. Vista’s CEO is considering purchasing either Machine A or Machine B, so that the company can manufacture its own switches. The projected data are as follows:
Machine A Machine B
Annual Fixed Costs $135,000 $204,000
Variable cost per switch $0.65 $0.30
Required
1. For each machine, what is the minimum number of switches that Vista must make annually for total costs to equal outside purchase cost?
2. At what production volume level would Vista be indifferent between buying Machin A and Machine B?
3. Which of the two decision alternative (Machine A vs. Machine B) would you recommend? Why?
4. Of the three options (outsource, Machine A, Machine B), which one is the most profitable alternative for producing 200,000 switches per year?
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