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Problem 1: What level of volume is necessary to justify making the part?
Flounder Company is currently purchasing a component for $13 but is considering making the part internally. The plant engineer has suggested two alternatives. The first alternative would increase fixed costs by $12,200 per month and incur variable costs of $9 per part. The second alternative would increase fixed costs by $19,500 and incur variable costs of $7 per part.
Problem 2: Over what relevant ranges of volume is each alternative optimal?
Problem 3: At a level of output of 3,350 units, which alternative is most profitable?
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