Calista Company manufactures electronic equipment. It currently purchases the special switches used in each of its products from an outside supplier. The supplier charges Calista $2 per switch. Calista's CEO is considering purchasing either machine X or machine Y so the company can manufacture its own switches. The projected data are as follows:

	Machine X	Machine Y	Buy Switch
Annual Fixed Cost	$ 135,000	$ 204,000
Variable cost	$ 0.65	$ 0.30
Cost per switch			$ 2.00

Required
1. For each machine, what is the minimum number of switches that Calista must make annually for total costs to equal outside purchase cost?
2. What volume level would produce the same total costs regardless of the machine purchased?
3. What is the most profitable alternative for producing 200,000 switches per year?

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2. cost of using X S.65QS135,000S.30Q+$204,000 S.35Q$69,000 cost of using Y 197,143 units When 197,143 switches are needed, the Calista Company is indifferent as to which machine to use An alternative way to determine the indifference point is: Fixed cost of Machine Y - Fixed Cost of Machine X Unit variable cost of X -Unit variable cost of Y $204.000 S135.000 65-30 197,143 Summary of (1) and (2): If output is less than 100,000, buy the switches; if output is less than 197,143 units but greater than 100,000, buy and use machine X; if output is greater than 197,143 units, then buy and use machine Y.