go.0 Vista Company manufactures electronic equipment. In 2021, it purchased from an outside supplier the special switches used in each ofits products. The supplier charged Vista $2.50 per switch. As an alternative, Vista's CEO considered purchasing either machine A ormachine B so the company could manufacture its own switches. The CEO decided at the beginning of 2022 to purchase machine A,based on the following data:Annual fixed cost (depreciation)Variable cost per switchMachine A$ 170,0000.80Machine B$ 214,0000.45Required:1. Assume that machine A has not yet been purchased. What is the annual volume that would make the company indifferent betweenthe two decision alternatives (i.e., purchasing and then using machine A to make the switches versus purchasing the switches from theoutside vendor)?2. Assume that machine A has already been purchased. Is it preferable to use machine A to make the switches or to purchase theswitches from the external supplier?3. Assume that machine A has already been purchased. At what annual volume level should Vista consider replacing machine A withmachine B?

Answers:Indifference Point: To make the company indifferent between manufacturing switches using…

Answered: Vista Company manufactures electronic…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Vista Company manufactures electronic equipment. In 2021, it purchased from an outside supplier the special switches used in each of
its products. The supplier charged Vista $2.50 per switch. As an alternative, Vista's CEO considered purchasing either machine A or
machine B so the company could manufacture its own switches. The CEO decided at the beginning of 2022 to purchase machine A,
based on the following data:
Annual fixed cost (depreciation)
Variable cost per switch
Machine A
$ 170,000
0.80
Machine B
$ 214,000
0.45
Required:
1. Assume that machine A has not yet been purchased. What is the annual volume that would make the company indifferent between
the two decision alternatives (i.e., purchasing and then using machine A to make the switches versus purchasing the switches from the
outside vendor)?
2. Assume that machine A has already been purchased. Is it preferable to use machine A to make the switches or to purchase the
switches from the external supplier?
3. Assume that machine A has already been purchased. At what annual volume level should Vista consider replacing machine A with
machine B?

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