Bovay Medical Labs is evaluating that alternatives of complete and partial in-house diabetes and associated blood-sugar testing labs, instead of outsourcing samples to an independent laboratory for analysis. The alternatives and associated costs are:
Complete lab in-house: If the in-house laboratory is completely equipped, the initial cost will be $50,000. A part-time technician will be employed at an annual equivalent salary of $26,000. Cost of chemicals and supplies is estimated to be $10 per sample.
Partial lab in-house: The laboratory can be partially equipped at an initial cost of $35,000. The part-time technician will not be required for as many hours and will have an annual equivalent salary of $10,000. The chemical cost of in-house sample analysis will be only $3 per sample. However, since some tests cannot be conducted in-house, outside testing will be required at an average cost of $40 per sample for all samples.
Complete outsourcing: The cost averages $120 per sample analysed.
Any laboratory equipment purchased is expected to have a life of only six years. Bovay stipulates that it expects an MARR of 10% per year.
(a) Determine the number of samples that must be tested each year in order to justify the complete lab.
(b) Determine the number of samples that must be tested each year in order to justify the partial lab
(c) If Bovay expects to test 300 samples per year, which of the three options is the best economically?