Question 26 Unsaved Use the following to answer the questions below. You current

Question

Question 26 Unsaved Use the following to answer the questions below. You currently purchase a part used in your production process from an outside supplier, and have decided to begin making this part in-house. You have two equipment options for moving production in-house: special-purpose equipment and general-purpose equipment. Cost information for these two options is as follows: Refer to the instruction above. For what range of output is the Special-Purpose Equipment the low-cost option?

Question 26 options:

30,000 or more units per year

0 - 30,000 units per year

0 - 40,000 units per year

40,000 or more units per year

Explanation / Answer

Fixed cost of special purpose equipment = $200,000 per year. Variable cost = $15 per unit.

Fixed cost of general purpose equipment = $50,000 per year. Variable cost = $20 per unit.

Total cost = fixed cost+(units manufactred*variable cost per unit)

Now, for the range 0 to 30,000 units: (let the number of units be 29,999)

Total cost of special purpose equipment: 200,000 + (29,999*15) = 649,985

Total cost of general purpose equipment = 50,000 + (29,999*20) = 649,980

For this range, general purpose is the low cost option.

Now, in the range 30,000 or more units per year (let the number of units be 30,001)

Total cost of special purpose equipment: 200,000 + (30,001*15) = 650,015

Total cost of general purpose equipment = 50,000 + ((30,001*20) = 650,020

Thus, special purpose equipment is the low cost option.

Thus the option is (i) 30,000 or more units per year. At this range, the Special-Purpose Equipment the low-cost option as the total cost of Special-Purpose Equipment will be lower than the total cost of general-purpose equipment in this range.

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