A company is trying to decide whether to buy a part from suppliers, produce the part while using manual assembly, or produce the part with an automated assembly system. The company expects an annual volume of 185,000 parts.
Here are the cost data for each alternative:
Buy Produce- Manual Assembly Produce- Automated Assembly
Fixed cost per year $0 $260,000 $875,000
Variable cost per part $18.60 $16.75 $16.25
a. Based on these data, which alternative is best?
b. At what annual volume of the part would the company be indifferent between buying the part and producing the part with automated assembly?
c. At what annual volume of the part would the company be indifferent between producing the part with manual assembly and with automated assembly?
d. What other considerations should be important in the decision?