Question
Betty's Bed frames, Inc. purchases a key component of one of its products from a local supplier. The current purchase price is $1,587 per unit.
Betty's Bed frames, Inc. purchases a key component of one of its products from a local supplier. The current purchase price is $1,587 per unit. Annual component usage should increase from 150 to 750 units. Emphasis on reliability has prompted management to consider making the component in-house, rather than to continue buying it from the supplier. Fixed costs would increase by about $40,000 per year for the new equipment and tooling needed. The cost of raw materials and variable overhead would be about $1,100 per unit, and labor costs would be $300 per unit produced. Since Betty's Bed frames would be ordering 750 units instead of 150, they can count on a discount from the supplier. The discount of at least $ _____ per unit would make the "buy" decision better than the "make" alternative if reliability is at least parity. (Enter your response rounded to the nearest whole number.) |
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