Asked by katy
Hahn Manufacturing purchases a key component of
one of its products from a local supplier. The current
purchase price is $1,500 per unit. Efforts to standardize
parts succeeded to the point that this same component
can now be used in five different products. Annual com-
ponent usage should increase from 150 to 750 units.
Management wonders whether it is time to make the
component in-house, rather than to continue buying it
from the supplier. Fixed costs would increase by about
$40,000 per year for the new equipment and tooling
needed. The cost of raw materials and variable overhead
would be about $1,100 per unit, and labor costs would be
$300 per unit produced.
a. Should Hahn make rather than buy?
b. What is the break-even quantity?
one of its products from a local supplier. The current
purchase price is $1,500 per unit. Efforts to standardize
parts succeeded to the point that this same component
can now be used in five different products. Annual com-
ponent usage should increase from 150 to 750 units.
Management wonders whether it is time to make the
component in-house, rather than to continue buying it
from the supplier. Fixed costs would increase by about
$40,000 per year for the new equipment and tooling
needed. The cost of raw materials and variable overhead
would be about $1,100 per unit, and labor costs would be
$300 per unit produced.
a. Should Hahn make rather than buy?
b. What is the break-even quantity?
Answers
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