The Light Company is planning on producing a new type of light shade, the parts for which may be made or bought. If purchased, they will cost $2 per unit. Making the parts on a semiautomatic machine will involve a $5000 fixed cost for tooling and $1.30 per unit variable cost. The alternative is to make the parts on an automatic machine. The tooling costs are $15,000, but the variable cost is reduced to 60¢ per unit.

a. Calculate the cost equalization point between buying and the semiautomatic machine.

b. Calculate the cost equalization point between the semiautomatic and automatic machines.

c. Which method should be used for expected sales of the following?

i. 5000 units ii. 6000 units iii. 8000 units iv. 10,000 units v. 25,000 units

d. What is the unit cost for the selected process for each of the sales in c above?

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