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Anyone with an answer to this question?
The production of using the machines is as follows:variable cost is 30000,fixed cost 50000 and total 80000 make or buy decision and if all components were outsourced there would generate additional cost of 50000.What is the maximum price the company should be willing to pay the outside supplier for the components
It depends on the position of Fixed cost. if the fixed cost is allocated to the product from the general fixed cost of the company the best price to pay for the product is 30,000 due to the fact that it is the only value lost.
But if the company produces only that product and fixed cost relate only to that product, the company can pay 50,000 to close production of that product and save 30,000.
Please check with Opentuition lecturer in FM/PM thread….and next time post your comments there.
@philla said:
Anyone with an answer to this question?
The production of using the machines is as follows:variable cost is 30000,fixed cost 50000 and total 80000 make or buy decision and if all components were outsourced there would generate additional cost of 50000.What is the maximum price the company should be willing to pay the outside supplier for the components
Anything less than 30000 would do…
I agree with above replies.When facing questions like this the important information is connected with the marginal costs and benefits of taking or not taking a specific action.The important questions to ask are whether the cost or revenue is a cash flow,whether it occurs in future or not and whether or not it is avoidable.To be relevant to decision it has to be a cash flow or connected to a cash flow directly,it has to be future based and it has to be avoidable.
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