Since Ritz Products must have the semiconductor, its best decision should be to purchase the semiconductors. The decision to purchase has an expected cost of $2,200,000.
Cost of Purchase:
Variable cost = $1.2 million (3 million x $0.40)
Fixed cost = $1 million
Total costs = $2.2 million
Thus, it will cost Ritz Products only $2.2 million to purchase the semiconductor.
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