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 $2.0 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)	$	151,000		$	220,000
Variable cost per switch		0.75			0.35

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?

RQ1

Complete this question by entering your answers in the tabs below.

• 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)? (Do not round intermediate calculations. Round UP your final answer to the nearest whole number.)

Indifference point

units/year

RQ2

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 Purchase the switches from the external supplier

RQ3

Assume that machine A has already been purchased. At what annual volume level should Vista consider replacing machine A with machine B? (Do not round intermediate calculations. Round UP your final answer to the nearest whole number.)

Volume level

units (per year)