207k views
0 votes
If Hoboken Industries is able to obtain part MR24 from an outside supplier at a unit purchase price of $17, what is the monthly usage at which it will be indifferent between purchasing and making part MR24?

User Starcaller
by
5.7k points

2 Answers

7 votes

Final answer:

To determine the monthly usage at which Hoboken Industries will be indifferent between purchasing and making part MR24, compare the cost of purchasing with the cost of making.

Step-by-step explanation:

To determine the monthly usage at which Hoboken Industries will be indifferent between purchasing and making part MR24, we need to compare the cost of purchasing with the cost of making.



The cost of purchasing is given as $17 per unit. Let's assume that the cost of making includes a fixed cost of $2000 per month plus a variable cost of $8 per unit. The total cost of making can be expressed as Cm = 2000 + 8Q, where Q is the monthly usage.



To find the monthly usage at which the costs are equal, we set the total cost of making equal to the cost of purchasing:



2000 + 8Q = 17Q



Simplifying the equation, we get 2000 = 9Q, which gives Q = 222.22 (rounded to two decimal places).



Therefore, Hoboken Industries will be indifferent between purchasing and making part MR24 when the monthly usage is approximately 222.22 units.

User Luin
by
5.9k points
9 votes

The question is incomplete. The complete question is as follows,

Hoboken Industries currently manufactures 30,000 units of part MR24 each month for use in production of several of its products. The facilities now used to produce part MR24 have a fixed monthly cost of $150,000 and a capacity to produce 84,000 units per month. If the company were to buy part MR24 from an outside supplier, the facilities would be idle, but its fixed costs would continue at 40 percent of their present amount. The variable production costs of part MR24 are $11 per unit.

If Hoboken Industries is able to obtain part MR24 from an outside supplier at a unit purchase price of $17, what is the monthly usage at which it will be indifferent between purchasing and making part MR24?

Answer:

The monthly usage at which the company will be indifferent between the two options is 15000 units.

Step-by-step explanation:

Let x be the number of units of MR24

The equation for cost of producing MR24 internally can be written as,

Cost = 150000 + 11x

The equation for cost for the option of buying MR24 externally can be written as,

Cost = (150000 * 0.4) + 17x

Equating both the equations,

150000 + 11x = (150000 * 0.4) + 17x

150000 + 11x = 60000 + 17x

150000 - 60000 = 17x - 11x

90000 = 6x

90000 / 6 = x

x = 15000 units

The monthly usage at which the company will be indifferent between the two options is 15000 units.

User Milovan Zogovic
by
6.4k points