Homework Answers
A: Here,
Annual Fixed Cost = $90,000
Cost of Manufacturing each Part = $100
Cost of Purchasing Product from Supplier(Outsourcing) = $190
Total Demand = 3000 Parts
Hence,
The total cost of Production =($100X3000) + $90,000 = $300,000 +$90,000 = $390,000
Total Cost of Outsourcing = $190 X 3000 = $570,000
So, the best decision is to Manufacture the product in house.
B: Here,
Fixed Cost = $90,000
Price Per Unit = $190
Variable Cost per Unit = $100
Break-Even Quantity(BEQ) = Fixed Cost(FC) / [Price Per Unit(P) - Variable Cost Per Unit(VC)]
BEQ = 90,000 / (190 - 100) = 90,000 / 90 = 1,000 Parts
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