Indifferent between making or buying the component

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Reference no: EM13751887

Broomsticks manufacturing makes a line of bathroom accessories. Because of a decline in sales, the company has 10,000 machine hours of idle capacity available each year. This idle capacity could be used by the company to make, rather than buy, one of the components used in its production process. A broomstick needs 5,000 units of this component each year. At present, the component is being purchased from an outside supplier at $7.50 per unit. Variable production cost for the component would be $4.10 per unit, and additional supervisory costs would be $18,000 per year. Already existing fixed costs that would be allocated to this part amount to $300,000 per year.

What would the annual cost of additional supervision have to be in order for Broomsticks to be indifferent between making or buying the component? (Assume everything else remains the same.)

Select one:

a. $20,000

b. $19,000

c. $18,000

d. $17,000

Reference no: EM13751887

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