Scenario 12.1 You Currently Make a Part on Old Equipment at a at a Cost

Multiple Choice

Scenario 12.1
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.

-Use Scenario 12.1 to answer the question. What does the company save for the year by selecting the low-cost option at an annual requirement of 40,000 units?

A) $150,000
B) $300,000
C) $50,000
D) $40,000