Sunderland Furniture is determining the make or buy for a new type of futon. Mak

Question

Sunderland Furniture is determining the make or buy for a new type of futon. Make-or-buy analysis indicates whether it would be preferable to make the new futon in house (option A) as compared to buying from the low-cost furniture maker (option B). Here are the two options the company has:

Option A: Make at Sunderland, fixed costs = $7,000, variable costs = $39 per unit

Option B: Purchase the futon from a Mexico-based furniture maker for $46 per unit

what would be Sunderland’s break-even cost?

$23,000

$11,500

$69,000

$46,000

Do not have enough information to compute

Explanation / Answer

ANSWER: $ 46,000

Breakeven volume = Fixed cost / (purchase cost - Variable manufacturing cost)

= 7000/(46-39)

= 1000

Breakeven cost = 7000 + 1000*39 = $ 46000

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