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The Green Machine Manufacturing Company has the option to make or buy a component part for one of its lawnmowers. The annual requirement is 25,000 units. A supplier is able to supply the parts for $12.25 per piece. Green Machine estimates that it will cost $700 to prepare the contract with the supplier. To make the parts in-house, Green Machine must invest $25,000 in capital equipment. They estimate it will cost $9.00 per piece to produce the part in-house. Carry all calculations out to two decimal places. What is the cost savings from making the correct decision? A. Less than or equal to $20,000 B. Greater than $20,000 but less than or equal to S35,000 C. Greater than $35,000 but less than or equal to $50,000 D. Greater than $50,000 but less than or equal to $65,000 E. Greater than $65,000
Expert Answer
| Option 1 | ||
| Annual requirement | 25000 | units |
| Supply part | 12.25 | $ per piece |
| Order cost | 700 | $/order |
| Total cost | 306950 | |
| Option 2 | ||
| Capital Equipment | 25000 | $ |
| Supply part | 9 | $ per piece |
| In house cost | 225000 | $ |
| Total cost | 250000 | |
| Savings | 56950 |
Option D
