Question

A jacket manufacturing company is considering making the zippers or purchasing them from another company. If you buy them, it will be for a price of €0.80 per unit. Manufacturing them would entail fixed costs of €30,000 and a variable cost of €0.20 per zipper. It is asked: Assuming that you manufacture 75,000 jackets, up to what purchase price will it be more profitable to buy the zippers? 45,000 euros 35,000 euros 37,500 euros

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Gene

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To determine the purchase price up to which it is more profitable to buy the zippers rather than manufacture them, we compare the total cost of manufacturing the zippers in-house with the total cost of purchasing them.

1. The total cost to manufacture zippers for 75,000 jackets is:

\text{Total Manufacturing Cost} = \text{Fixed Costs} + (\text{Variable Cost per Zipper} \times \text{Number of Jackets}) = 45,000 \text{ euros}

2. The total cost to purchase zippers for 75,000 jackets at €0.80 per unit would be:

\text{Total Purchase Cost} = \text{Purchase Price per Zipper} \times \text{Number of Jackets} = 0.80 \times 75,000 = 60,000 \text{ euros}

3. To find the purchase price per zipper for equal cost-effectiveness, set the total manufacturing cost equal to the total purchase cost:

45,000 = P \times 75,000

4. Solve for P to find the purchase price per zipper:

P = \frac{45,000}{75,000} = 0.60 \text{ euros}

Therefore, up to a purchase price of €0.60 per zipper, it is more profitable for the company to buy the zippers rather than manufacture them.

\boxed{P = 0.60 \text{ euros}}

1. The total cost to manufacture zippers for 75,000 jackets is:

2. The total cost to purchase zippers for 75,000 jackets at €0.80 per unit would be:

3. To find the purchase price per zipper for equal cost-effectiveness, set the total manufacturing cost equal to the total purchase cost:

4. Solve for

Therefore, up to a purchase price of €0.60 per zipper, it is more profitable for the company to buy the zippers rather than manufacture them.

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