Problem: Lawson Industries (LI) makes portable CD Players. A new model has been developed that requires a new design of a display unit. LI is contemplating whether to buy the units from a supplier, to produce the units while using a manual assembly system, or to produce the units while using an automated assembly system.
Buy Manual Automated
Annual Volume 100,000 100,000 100,000
Fixed cost per year --- $300,000 $500,000
Variable cost per unit $10 $8 $7
1. What should LI do - buy, produce with manual assembly, or produce with automated assembly?
2. Would your answer change if 150,000 units were needed annually?
3. What other considerations would be important in this decision?