PART A OF THE SAME QUESTION

Make-or-Buy Decision Arches Manufacturing had always made its components in-house. However, Canyonlands Component Works had recently offered to supply of component DA each year. The cost per unit of this component is as follows: Assume that 80% of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produc Required: 1. Conceptual Connection: If Arches decides to purchase the component from Canyonlands, by how much will operating income increase or Which alternative is better? 2. Conceptual bonnection: Briefly explain how increasing or decreasing the 80% figure affects Arches's final decision to make or purchase the As the percentage of avoldable fixed cost increases (above 80% ), total relevant costs of making the component increase, causing the "purchas (compared to the "make" option) than it was when the percentage was 80%. In other words, as the percentage increases, difference between "purchase" decision being even attractive. Alternatively, as the percentage of avoidable fixed costs decreases, the "mak appealing financially as the "purchase" option. Finally, as the percentage of avoldable fixed cost decreases low enough a option becomes the more financially appealing option 3. Conceptual Connection: By what dollar amount would the per-unit relevant fixed cost have to decrease before Arches would be indifferent ( 1. the component? Make-or-Buy Decision Arches Manufacturing had always made its components in-house. However, Canyonlands Component Works had recently offered to supply of component DA each year. The cost per unit of this component is as follows: Assume that 80% of Arches Manufacturing's fixed overhead for component DA would be eliminated if that component were no longer produc Required: 1. Conceptual Connection: If Arches decides to purchase the component from Canyonlands, by how much will operating income increase or Which alternative is better? 2. Conceptual bonnection: Briefly explain how increasing or decreasing the 80% figure affects Arches's final decision to make or purchase the As the percentage of avoldable fixed cost increases (above 80% ), total relevant costs of making the component increase, causing the "purchas (compared to the "make" option) than it was when the percentage was 80%. In other words, as the percentage increases, difference between "purchase" decision being even attractive. Alternatively, as the percentage of avoidable fixed costs decreases, the "mak appealing financially as the "purchase" option. Finally, as the percentage of avoldable fixed cost decreases low enough a option becomes the more financially appealing option 3. Conceptual Connection: By what dollar amount would the per-unit relevant fixed cost have to decrease before Arches would be indifferent ( 1. the component