Vista Company manufactures electronic equipment. In 2018, it purchased from an outside supplier the special switches used in each of its products. The supplier charged Vista $2.4 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 2019 to purchase machine A, based on the following data:

	Machine A			Machine B
Annual fixed cost (depreciation)	$	147,000		$	216,000
Variable cost per switch		0.90			0.55

Required:

1. Assume that machine A has not yet been purchased. What is the annual volume that would make the company indifferent between the two decision alternatives (i.e., purchasing and then using machine A to make the switches versus purchasing the switches from the outside vendor)?

2. 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 the external supplier?

3. Assume that machine A has already been purchased. At what annual volume level should Vista consider replacing machine A with machine B?

Indifference point

units/year

• Required 1
• Required 2
• Required 3

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 the external supplier?

	Use machine A to make the switches.radio button unchecked1 of 2 Purchase the switches from the external supplier.radio button unchecked2 of 2

Volume level

units (per year)