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Explain in detail the rationale for your answers. Hahn Manufacturing purchases a key component...

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Accounting

Explain in detail the rationale for your answers.

  1. Hahn Manufacturing purchases a key component of one of its products from a local supplier. The current purchase price is $1,500 per unit. Efforts to standardize parts suc- ceeded to the point that this same component can now be used in five different products. Annual component usage should increase from 150 to 750 units. Management won- ders whether it is time to make the component in-house rather than to continue buying it from the supplier. Fixed costs would increase by about $40,000 per year for the new equipment and tooling needed. The cost of raw mate- rials and variable overhead would be about $1,100 per unit, and labor costs would be $300 per unit produced.


  1. Should Hahn make rather than buy?

  2. What is the break-even quantity?

  3. What other considerations might be important?

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