Question
Make or Buy: Vista company manufactures electronic equipment. In 2015, it purchased from an outside supplier the special switches used in each of its products.
Make or Buy:
Vista company manufactures electronic equipment. In 2015, it purchased from an outside supplier the special switches used in each of its products. The supplier charged Vista $2 per switch. AS an alternative, Vista's CEO considered purchasing either Machine A or Machine B so the company could manufacture its own switches. The CEO decided at the beginning of 2016 to purchase Machine A, based on the following data:
Machine A | Machine B | |
Annual fixed cost (depreciation) | $135000 | $204000 |
Variable cost per switch | .65 | .30 |
1) Assume that machine A has already been purchased. Is it preferable to use machine A to make the switches or to purchase the switches from an external supplier?
2) At what volume level should Vista consider replacing Machine A with Machine B?
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