Reference no: EM132573833

Brexity company limited has research and production department identified a widget which it now manufactures at a cost of$1.00 per unit could be brought in Barbados for $.082 per unit.

Brexity company has fixed costs of$0.20 per unit that cannot be eliminated if they were to purchase this widget. Brexity needs 460,000 of these widgets each. If Brexity decides to purchase rather than produce the widget,it can devote the machinery and labor to making the automated ramp it now buys from another company. Brexity uses approximately 500 of these automated ramps each year. The cost of the automated ramp is $12.66. To aid in the production of this automated ramp, Brexity would need to purchase a new machine at a cost of$2,345 and the cost of producing the automated ramps would be $9.90 each.

Question (a) Without considering the possibility of making the automated ramp, evaluate whether Brexity should buy or continue to make the widget.

Question (b) What is Brexity's opportunity cost if it chooses to buy the widget and start manufacturing the sit ramp unit.

Question (c) Would it be wise for Brexity to buy the widget and manufacture the automated ramp? Explain