QUESTION 9 Scenario 2.6 You currently purchase a part used in your production process from an outside supplier, and have decided to begin making this part in-house. You have two equipment options for moving production in-house: special-purpose equipment and general-purpose equipment. Cost information for these two options is as follows: ALTERNATIVE Special-Purpose Equipment General-Purpose Equipment FIXED COST $200,000 per year $50,000 per ye ar VARIABLE COST $15 per unit $20 per unit Use Scenario 2.6 to solve this mystery. At an annual requirement of 40,000 units, what does the company save per year by selecting the low-cost option? $50,000 $300,000 $40,000 $150,000

Difference in fixe cost =150,000

Difference in variable cost = 5*40000 = 200,000

So, in this case, special purpose equipment is the lower cost option

so, savings = 200000 – 150000

= $50,000 (option a)

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