Great Engine Company $($GEC$)$ Is trylng to decide whether it should purchase new equipment so that it can continue to make Its

engines $($a key component of Its final product$)$ Internally, or whether production should be discontinued and the engines purchased

from an outside supplier.

New equipment for producing the engines can be purchased at a cost of $$4,490,000.$ The equipment would have a five$-$year useful life

$($the company uses straight$-$line depreclation$)$ and a $$1,280,000$ salvage value. Alternatlvely, the englnes could be purchased from an

outside suppler. The supplier has offered to provide the englnes for $$165\mathrm{.}00$ each under a five$-$year contract.

GEC present costs per unlt of producing the engines Internally $($with the old equipment$)$ are given below. The costs are based on a

current actlvity level of $42,800$ engines per year:

The overhead amount of $$59\mathrm{.}00$ per unit Includes both varlable and fixed Items as follows:

Supervision was directly traceable to the manufacturing actlvity and primarlly Involved supervising the hourly labour and overseelng

production.

The new equipment would be more efficlent and would reduce direct labour costs and varlable overhead costs by $25\%.$ Supervision

cost $($ $$460,000$ per year$)$ and direct materlals cost per unlt would not be affected by the new equipment. The company has no other

use for the space now belng used to produce the engines. The company's total general overhead would not be affected by this

decision.

Required:

Assume that $42,800$ englnes are needed each year. Should GEC purchase new equipment and contInue manufacturing the engines,

or should It buy the engines from the outside supplier?

New equipment

Outside supplier

At what level of actlvity will the company be Indifferent between the two optlons? $($Do not round Intermedlate calculations and

round your final answer to nearest whole number.$)$