Reference no: EM132559309

A manager is trying to decide whether to purchase a certain part or to have it produced internally. Internal production could use either of two processes. One would entail a variable cost of $17 per unit and an annual fixed cost of $200,000; the other would entail a variable cost of $14 per unit and an annual fixed cost of $240,000. Three vendors are willing to provide the part. Vendor A has a price of $20 per unit for any volume up to its maximum capacity of 30,000 units. Vendor B has a price of $22 per unit for demand less than 1,000 units, and $18 per unit for larger quantities. Vendor C offers a price of $21 per unit for the first 1,000 units, and $19 per unit for additional units.

Question 1: If the manager anticipates an annual volume of 10,000 units, which alternative would be best from a cost standpoint? For 20,000 units, which alternative would be best?

TC for 10,000 units

TC for 20,000 units

Int. 1: $ Int. 1: $

Int. 2: $ Int. 2: $

Vend A $ Vend A $

Vend B $ Vend B $

Vend C $ Vend C