Question

You are given the following information:COSTSMAKE OPTIOnBUy OPTIOnFixed Cost$25,000$3,000Variable Cost$8$12a.Find the break-even quantity and the total cost at the break-even point.b.If the requirement is 4,500 units, is it more cost-effective for the firm to buy or make the components? What is the cost savings for choosing the cheaper option?c.If the requirement is 6,000 units, is it more cost-effective for the firm to buy or make the components? What is the cost savings for choosing the cheaper option?

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

Make in house

Fixed Cost= $25,000

Variable Cost= $8

Outsource

FIxed cost= $3,000

Variable cost= $12

a. Find the break-even quantity and the total cost at the break-even point.

in house cost= 25000+8*q

Outsource= 3000+12*q

25000+8*q=3000+12*q

22000=4q

5500=q

In house= 25000+8*5500= $69000

Oursource= 3000+12*5500= $69000

b. Q=4500

In house= 25000+8*4500= $61000

Oursource= 3000+12*4500= $57000

At this given quantity, it is cheaper to outsource. Costs saving sum up to $4000

c. q=6000

In house= 25000+8*6000= $73000

Oursource= 3000+12*6000= $75000

At this given quantity, it is cheaper to make in-house. Costs saving sum up to $2000