Question: An auto parts company requires a large number of gaskets which they currently buy for .50 each. A recent feasibility study has indicated that if they produced them internally, their annual fixed costs (loan payments on equipment, equipment maintenance, etc.) would total $10,000 and the material and labour costs would be .40 per gasket.

a. They currently require 70,000 gaskets per year. Should they begin to produce their own gaskets? Explain.

b. They estimate their gasket requirements will increase by 10,000 a year. In how much time will it become profitable to manufacture the gaskets internally assuming that the costs remain the same.