Question: A firm installs 1500 air conditioners which need to be serviced every six months. The firm can hire a team from its logistics department at a fixed cost of $6,000. Each unit will be serviced by the team at $15.00. The firm can also outsource this at a cost of $17.00 inclusive of all charges.
a. For the given number of units, compute the total cost of servicing for both options. Which is a better decision?
b. Find the break-even volume and characterize the range of volumes for which it is more economical to outsource.