Question - Your Company is currently purchasing an item used in the production of your main product from a supplier for $5.00 each. By investing in a machine to produce the component internally, you could produce it with total variable costs of $2.00 per unit. The machine would require an investment of $10,000.
1. What are some of the most important considerations to be discussed and analyzed before deciding whether to purchase the machine and produce the component internally?
2. What will be the effect on the company's operating leverage if the machine is purchased and the component is produced internally?