Question

A common bracket can be purchased in large quantities for $0.67. The company can make the bracket at a variable cost of $0.41 by buying a machine for $33,000. Demand over the next two years (the anticipated life of the product and machine) is estimated to be normally distributed with mean 100,000 units and a standard deviation of 10,000 units. Would you recommend making or buying this bracket?

Answer 1

we recommnend to buy this bracket

Step-by-step explanation:

The computation is shown below:

Given tyhat

Buying cost of the machine = $33,000 = x

x_1 = $0.67

And, x_2 = $0.41

Now the break even point is

X = x ÷ (x_1 - x_2)

= $33,000 ÷ ($0.67 - $0.41)

= 126,923 units

Therefore

Probability (Demand > Break even point)

= 1 -
`\phi` ($126,923 - 100,000) ÷ 10,000

= 1 -
`\phi` (2.69)

= 0.36%

where

`\phi` = function of cumulative distribution of N (0,1)

Therefore the probability is that it makes economically the items would be lesser

Thus, we recommnend to buy this bracket