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Question 2 (8 points): The company ABC is considering two options, buying or making automotive parts. The company ABC can buy automotive parts from the
Question 2 (8 points): The company ABC is considering two options, buying or making automotive parts. The company ABC can buy automotive parts from the company XYZ for $65/piece. Alternatively, the company ABC can make parts in-house. It would have to purchase a building at $300,000 and purchase two machines, which run in a sequence to produce one piece, at $50,000 and $45,000. An operator needs to be hired to run both machines and a direct labor cost is $35/hour. To produce a piece of automotive parts, one hour of total labor is required. Assume raw materials costs $10 per piece of automotive parts produced. At a unit sale price of $150/piece, should you buy or make if you forecast sales of automotive parts to be 15,000 pieces? What if the forecast is changed to 20,000 pieces? At what forecast level would you be neutral to the make- buy decision
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