. A manufacturing firm is considering whether to produce or outsource the production of a new product. If they produce the item themselves, they will incur a fixed cost of $950,000 per year, but if they outsource overseas there will be a $1.5 million cost per year. The advantage of outsourcing overseas is the variable cost of 95¢ per unit, which is a fraction of their $43/unit cost in their own union shop. Regardless where these devices are made, they will sell for $98 each.
1. What is the break-even quantity for each alternative?
2. At what quantity does it make no difference whether the products produced in house or outsourcing?
3. If you had an order for 16000 units would you recommend in-house production or outsourcing?