At an annual requirement of 40,000 units, what the company save per year by selecting the low-cost option is :$50,000.
At 40000 units annual production:
Alternative: Buy:
Fixed Cost $200,000
Variable Cost $600,000
( 15 x 40000)
Total Costs = $800,000
Alternative: Make
Fixed Costs $50,000.00
Variable Costs $800,000
( 20 x 40000)
Total Costs $850,000
Total savings on buying:
Total savings on buying = $850,000 - $800,000
Total savings on buying= $50,000
Therefore at an annual requirement of 40,000 units, what the company save per year by selecting the low-cost option is :$50,000.
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The complete question is:
You currently make a part on old equipment at a cost of $50,000 per year and a variable cost of $20 / unit. You have found an outside supplier who will make the part for $15 / unit if you will pay their annual fixed costs of $200,000 / year. The following table summarizes the details of this make versus buy decision.
Alternative: Buy. Fixed cost: $200,000 per year. Variable cost: $15 per unit.
Alternative: Make. Fixed cost: $50,000 per year. Variable cost: $20 per unit.
What does the company save for the year by selecting the low-cost option at an annual requirement of 40,000 units?
A. $40,000
B. $150,000
C. $300,000
D. $50,000
