Pepsi Co. is currently makes 2,500 units of a unique part for one of its...
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Pepsi Co. is currently makes 2,500 units of a unique part for one of its finished products. Variable production costs for this part are $14.00 per unit; fixed costs associated with this part are $13,000 per year.
An outside company has offered to supply Pepsi Co. with the part for a price of $16.00 per unit. For Pepsi Co., the bad news is that it will have to inspect the parts upon arrival, requiring rental of a special machine for $3,000 per year and per-unit inspection costs of $3.50. The good news is that if it buys the part, not only can it avoid all of the fixed costs associated with the production of the part, but it can use the released production facilities to generate $15,000 per year.
At what production level would Pepsi Co. be indifferent between making the part and buying it?
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