Arches Manutacturing had always mode its camponents io-house. However, Canyonlands Component Woks had recently offered to supply ane component, 14 , at a price of $52 each. Aiches ines 10,000 units of component DA each vear. The cost per unit of this component is as follows: Hequiredi component in house)? 1 Which alternates is better? As the percentaje of avoidable fised cost increases (abowe 80\%), total relevant costs of mabng the camponent increase, causing the "purchase" decison to be finarcially appealing (compared to the "make" optoon) than it was when the percentage pas Bow. In other wordx, as the petomtage increases, defierence between the "purchase" and "make" options incrcases tresulting in the "purchase" decision beirig even attractive. Aternatively, as the percontage of avoidable 1. Conceptual Connectoon: If Arches decides to purchase the component from Caryonlands, by how much will operating incorne increase or decreaie fas conpaled to making the component in house)? 1 Which altemative is better? 2. Conceptual Connection: Bnefly explain how increasing or decreasing the BOW figure affects Ardxis's final decnion to make or purchiate the component. between the "purthase" and "make" ophens increases resulting in the "purchase" decision being even atractive. Alternativelir, as the percentage of ircidable fixed cover decreases, the "make" eption evertually is costry and atpeabing finandally as the "purchase" option. Finuti, as the percentage of avodable fixed cust decreases fow enough and the fotal iclevant costs of makng the canponent decrease, the estion becomes the more financiatoy appealing option "makipg" versus "purchasing" the componehe? 1 Arches Manutacturing had always mode its camponents io-house. However, Canyonlands Component Woks had recently offered to supply ane component, 14 , at a price of $52 each. Aiches ines 10,000 units of component DA each vear. The cost per unit of this component is as follows: Hequiredi component in house)? 1 Which alternates is better? As the percentaje of avoidable fised cost increases (abowe 80\%), total relevant costs of mabng the camponent increase, causing the "purchase" decison to be finarcially appealing (compared to the "make" optoon) than it was when the percentage pas Bow. In other wordx, as the petomtage increases, defierence between the "purchase" and "make" options incrcases tresulting in the "purchase" decision beirig even attractive. Aternatively, as the percontage of avoidable 1. Conceptual Connectoon: If Arches decides to purchase the component from Caryonlands, by how much will operating incorne increase or decreaie fas conpaled to making the component in house)? 1 Which altemative is better? 2. Conceptual Connection: Bnefly explain how increasing or decreasing the BOW figure affects Ardxis's final decnion to make or purchiate the component. between the "purthase" and "make" ophens increases resulting in the "purchase" decision being even atractive. Alternativelir, as the percentage of ircidable fixed cover decreases, the "make" eption evertually is costry and atpeabing finandally as the "purchase" option. Finuti, as the percentage of avodable fixed cust decreases fow enough and the fotal iclevant costs of makng the canponent decrease, the estion becomes the more financiatoy appealing option "makipg" versus "purchasing" the componehe? 1
