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Grumpy Trucking manufactures trucks and currently produces all of the required parts for its trucks internally. Grumpy has received an offer from an external vendor
Grumpy Trucking manufactures trucks and currently produces all of the required parts for its trucks internally. Grumpy has received an offer from an external vendor to supply all of the axles for Grumpy's trucks at a cost of $5,000 per axle. Grumpy's budget includes the following information related to axle production: Machine costs represent rental payments for equipment used in axle production, if Grumpy accepts the external vendor's offer, it could choose not to rent the machine. Suppose that if Grumpy accepts the external vendor's offer, it could retool its axle-producing factory to instead improve its trucks' driveshafts. Doing so would increase the selling price of each truck by $10,000 and the variable production cost of each truck by $6,000. Retooling costs would total $1,000,000. What is the maximum cost per axle that Grumpy should be willing to pay the external vendor if this retooling option is available? Assume there are two axles for each truck (i.e., budgeted axle production tooling of 2,000 units corresponds to 1,000 units of budgeted truck production)
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