A company is trying to decided whether to make a component in-house or continue

Question

A company is trying to decided whether to make a component in-house or continue to rely on outsourcing. The supplier offers the component at $55.00 for the first 3,000 units and $49.00 afterwards. At how many units should the company switch from the supplier to in-house production? The following is the estimated costs of in-house production.


Direct Materials (per unit) 12.50
Direct Labor 22.00
Overhead 17.00
Variable Selling Costs of Final Product 6.00

A) 6,400 units
B) 6,800 units
C) 7,100 units
D) 7,200 units

Explanation / Answer

A) 6,400 units

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