You are asked to recommend whether a firm should make or purchase product A. The following are data concerning the two options. For the purchase option, the firm can buy product A at $17 per unit. For the make option, the firm can produce product A based on the following cost estimation data. The firm has to pay a weekly rental payment of $9,200 for the production facility. With the use of this facility, the firm also has to hire five operators to help make product A. Each operator works eight hours per day, five days per week at the rate of $8 per hour. In other words, the rental and labor expenses are fixed costs. The material cost for the make option is $13 per unit of product A. a. Find a weekly amount of product A that provides the breakeven point for the firm. The breakeven point in this problem indicates the firm's indifference between purchasing or making product A. b. If the firm estimates the sale of product A to be 1,700 units per week, should it make or purchase product A? a. A weekly amount of product A that provides the breakeven point for the firm is 2700 units per week. (Round to the nearest whole number.) b. If the firm makes 1,700 units per week, the total cost will be $. (Round to the nearest dollar.)

You are asked to recommend whether a firm should make or purchase product A. The following are data concerning the two options. For the purchase option, the firm can buy product A at $17 per unit. For the make option, the firm can produce product A based on the following cost estimation data. The firm has to pay a weekly rental payment of $9,200 for the production facility. With the use of this facility, the firm also has to hire five operators to help make product A. Each operator works eight hours per day, five days per week at the rate of $8 per hour. In other words, the rental and labor expenses are fixed costs. The material cost for the make option is $13 per unit of product A. a. Find a weekly amount of product A that provides the breakeven point for the firm. The breakeven point in this problem indicates the firm's indifference between purchasing or making product A. b. If the firm estimates the sale of product A to be 1,700 units per week, should it make or purchase product A? a. A weekly amount of product A that provides the breakeven point for the firm is 2700 units per week. (Round to the nearest whole number.) b. If the firm makes 1,700 units per week, the total cost will be $. (Round to the nearest dollar.)

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 3MC

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