Question
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 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 $2.20 per switch. As an alternative, Vistas 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) | $145,000 | $206,000 |
Variable cost per switch | 0.75 | 0.40 |
Required: |
1. | Assume that machine A has not yet been purchased. What is the indifference point between purchasing machine A and purchasing the switches from the outside vendor? (Do not round intermediate calculations.) |
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