Problem 12-23 (continued)
3. At a volume of 120,000 boxes, the company should buy the tubes. The
computations are:
Cost of making 120,000 boxes:
120,000 boxes × $1.15 per box ……………….
$138,000
Rental cost of equipment ………………………..
40,000
Total cost ………………………………………………
$178,000
Cost of buying 120,000 boxes:
120,000 boxes × $1.35 per box ……………….
$162,000
Or, on a total cost basis, the computations are:
Cost of making 120,000 boxes:
120,000 boxes × $6.10 per box ……………….
$732,000
Rental cost of equipment ………………………..
40,000
Total cost ………………………………………………
$772,000
Cost of buying 120,000 boxes:
120,000 boxes × $6.30 per box ……………….
$756,000
Thus, buying the boxes will save the company $16,000 per year.
