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A firm plans to begin production of a new small appliance. The manager must decide whether to purchase the motors for the appliance from a vendor for $40 each or to produce them in-house. Either of two processes could be used for the in-house production. Production Option One would have an annual fixed cost of $200,000 and a variable cost of $15 per unit. Production Option Two would have an annual fixed cost of $450,000 and a variable cost of $10 per unit. Determine the range of annual production for which each of the alternatives would be best. In other words, for what range of production output would the purchase option be best? What range would be best for the production option 1? And, what range would be best for the production option 2?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M9701866

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