Suppose that a firm has the option to make or buy a part. Its annual requirement is 16,000 units. A supplier can supply the part at $6 per unit. The firm estimates that it costs $700 to prepare the purchase contract. To make the part, the firm must invest $22,000 in equipment, and the firm estimates that it would cost $3 per unit to make the part.

COSTS	MAKE OPTION	BUY OPTION
Fixed Cost		$22,000			$700
Variable Cost		$3			$6
Annual Requirement = 16,000 units

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

Questions

1. What is the break-even point? Round your answer to the nearest whole number.

fill in the blank 2

2. What is the total cost at the break-even point? Round your answer to the nearest dollar.

$ fill in the blank 3

3. What is the total cost for the make option? Round your answer to the nearest dollar.

$ fill in the blank 4

4. What is the total cost for the buy option? Round your answer to the nearest dollar.

$ fill in the blank 5

5. What is the cost difference (make buy)? Round your answer to the nearest dollar. Use the minus sign to enter a negative difference, if any.

$ fill in the blank 6

6. To obtain the lowest production cost, should the firm make or buy the part?

The firm should

makebuy

the part.