Question
An entity makes a line of bathroom accessories. Because of a decline in sales, the company has 12980 machine hours of idle capacity available each
An entity makes a line of bathroom accessories. Because of a decline in sales, the company has 12980 machine hours of idle capacity available each year. This idle capacity could be used by the company to make, rather than buy, one of the components used in its production process. The entity needs 5994 units of this component each year. At present, the component is being purchased from an outside supplier at $7.95 per unit. Variable production cost for the component would be $5.31 per unit, and additional supervisory costs would need to be incurred. Already existing fixed costs, which would be allocated to this part, amount to $307944 per year.
What would the annual cost of additional supervision have to be in order for Hadley to be economically indifferent to making or buying the component?
Select one:
a. $15824
b. $17824
c. $18824
d. $16824
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