An automotive company produces 12,000 fuel tanks per year that are used in the cars they sell. The table below shows the costs of last years production.

Type of cost	Expense ($)
Direct materials	100,000
Direct labor	180,000
Variable overhead	105,000
Fixed overhead	50,000
Total	435,000

The company expects there to be a constant demand for fuel tanks for each of the next 4 years. If the company continues to produce the fuel tanks in-house, the direct materials costs, variable overhead costs and fixed overhead costs will remain unchanged. The direct labor cost will increase by $5000 per year.

Alternatively, the company can decide to purchase fuel tanks from a vendor for $36/unit. If the company chooses to purchase from the vendor, some of the manufacturing facilities currently used could be rented to a third party for $20,000 per year.

Assume the companys MARR is 6%.

a) What is the AEC if the company chooses to continue producing fuel tanks in-house? Round to the nearest dollar.

b) What is the cost per unit to make the fuel tanks in-house? Round to the nearest hundredth

c) Which following costs need to be considered for both make or buy options?

Fixed overhead

Variable overhead

Rental Revenue

Direct materials

Direct labor

d) What is the cost per unit to purchase from the vendor? Round to the nearest hundredth.

e) Based on your answers from parts b and d, should the company make or buy fuel tanks?

Make

Buy