Question: Suppose the supplier of keyboards described in Example is willing to offer the following incremental quantity discount schedule:
Determine the cost to the firm for order quantities in increments of 20,000 for Q = 200,000 to Q = 1,000,000, and compare that to the cost to the firm of producing internally for these same values of Q. What is the break-even order quantity?
Example: A large international computer manufacturer is designing a new model of personal computer and must decide whether to produce the keyboards internally or to purchase them from an outside supplier. The supplier is willing to sell the keyboards for $50 each, but the manufacturer estimates that the firm can produce the keyboards for $35 each. Management estimates that expanding the current plant and purchasing the necessary equipment to make the keyboards would cost $8 million. Should they undertake the expansion?