Hahn Manufacturing has been purchasing a key component of one of its products from a local supplier. The current purchase price is $1500 per unit. Efforts to standardize parts have succeeded to the point that this same component can now be used in five different products. Annual component usage should increase from 150 to 750 units. Management wonders whether it is time to make the component in-house, rather than to continue buying it from the supplier. Fixed costs would increase by about $40,000 per year for the new equipment and tooling needed. The cost of raw materials and variable overhead would be about $1100 per unit, and labor costs would go up by another $300 per unit produced.
1. Should Hahn make rather than buy?
2. What is the break-even quantity?
3. What other considerations might be important
Please show any and all work as that is really needed to understand the principles.