Assignment:
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 $850,000 per year, but if they outsource overseas there will be a $1.6 million cost per year. The advantage of outsourcing overseas is the variable cost of per unit, which is a fraction of their $45/unit cost in their own union shop. Regardless where these device are made, they will sell for $95 each.
1. What is the break even quantity for each alternative? solve this problem algebraically.
2. At what quantity does it make no difference whether the product is produced in house or outsourced?
3. If you had an order for 15,000 units would be recommend in-house production or outsourcing?