What is the total financial benefit to the company of purchasing the appropriate number of units from the external supplier rather than producing them in-house?

A company makes and sells a range of products.

The standard details per unit for one of these products, product X, are as follows.

To meet sales demand, the company must obtain 2,000 units of product X next month. There is sufficient labour capacity to produce 1,500 of these units in-house during normal time. However, any production above this level would require overtime working which would be paid at a premium of 50%.

The company can buy as many units of product X as it wishes next month from an external supplier at a price of $120 per unit.

What is the total financial benefit to the company of purchasing the appropriate number of units from the external supplier rather than producing them in-house?
A . $20,000
B . $30,000
C . $27,500
D . $5,000

View Answer

Answer: D