Sunshine State Fruit Company sells premium-quality oranges and other citrus
fruits by mail-order. Protecting the fruit during shipping is important, so the company
has designed and produces special shipping boxes. The annual cost of 80,000
boxes is

Suppose National Boxes Inc. submits a bid to supply Sunshine State
with boxes for $2.40 per box. Sunshine State must give National Boxes Inc.
the box design specifications, and the boxes will be made according to those
specifications.
1. How much, if any, would Sunshine State save by buying the boxes
from National Boxes Inc.?
2. What subjective factors should affect Sunshine State’s decision
whether to make or buy the boxes?
3. Suppose all the fixed costs represent amortization on equipment that
was purchased for $600,000 and is just about at the end of its ten-year
life. New replacement equipment will cost $1 million and is also
expected to last ten years. In this case, how much, if any, would
Sunshine State save by buying from National Boxes Inc.?

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Materials Labour $120,000 20,000 Overhead Variable 16,000 Fixed 60,000 Total $216,000 Therefore, the cost per box averages $2.70.