Question
Your company is planning to manufacture a new product. The product requires a part that the company does not now produce. The part can be
Your company is planning to manufacture a new product. The product requires a part that the company does not now produce. The part can be purchased from an outside supplier or made in-house. The outside supplier charges $5 each for the part. In order to produce the part in-house, the company must invest in a new machine. The cost of the machine is $10,000, its life is 5 years, and its salvage value is 0. If the company had this machine it could produce the part for $2 each, not including capital costs. What production rate (parts per year) would justify in-house production? The MARR is 10%.
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