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4) An industrial firm can manufactures several lines of pressure washers. The demand for a particular component required for a pressure washer is 120,000 per
4) An industrial firm can manufactures several lines of pressure washers. The demand for a particular component required for a pressure washer is 120,000 per year. The firm has the following two options: Buy option: A supplier is willing to provide this component at a unit sales price of $ 35.00, if at least 100,000 units are ordered annually. Make option: The machine that can be used to manufacture this component costs $ 2, 200,000 now and will have a salvage value of $ 120,000 after the economic life of five years. The manufacturing cost per unit including the direct material and labor and the variable and fixed factory overhead only is $ 30.00. In addition, the annual maintenance cost of the machine is $ 100,000. Calculate the unit cost under each of the above two options and choose the best option. Assume that the firm?s interest rate is 12 %, compounded annually
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