Decision

A company wants to decide whether to make its materials in-house or to sub-contract production to an
external supplier. In the past it has made four materials in-house, but demand in the next year will exceed in-
house production capacity of 8,000 units. All four materials are made on the same machines and require the
same machine time per unit: machine time is the limiting production factor.
The following information is available.
Material W X Y Z
Units required 4,000 2,000 3,000 4,000
Variable cost of in-house manufacture $8 per unit $12 per unit $9 per unit $10 per unit
Directly attributable fixed cost
expenditure

$5,000 $8,000 $6,000 $7,000
Cost of external purchase $9 per unit $18 per unit $12 per unit $12 per unit
Directly attributable fixed costs are fixed cash expenditures that would be saved if production of the material
in-house is stopped entirely.
If a decision is made solely on the basis of short-term cost considerations, what materials should the
company purchase externally?
Select… ?
A.4,000 units of W and 1,000 units of Z
B. 4,000 units of W and 4,000 units of Z
C.3,000 units of Y and 2,000 units of Z
D. 1,000 units of Y and 4,000 units of Z
My question – Answer is B . I understand that the difference for additional units for W is -1000 and for Z is +1000 , X is +4000 and Y is +3000 then we definitely need to purchase W from externally but why Z and how did they get 4,000 units for W and Z each.
Can you please help me with that ..
Thanks in advance ..