Question

John is the NKL Project project manager for his company. John has discovered that to create a portion of his project deliverables, his team could complete the project work for $17,650, with a monthly fee of $4,334. A vendor that John has previously worked with reports that they could complete the same work for $13,450 but the monthly support for their solution is $6,000. If John elects to create the solution in-house rather than turn to the vendor, how long must the solution be in use to be more cost-effective than the vendors?

Answer 1

To determine how long the in-house solution must be in use to be more cost-effective than the vendor option, we compare the total costs over time. the in-house solution has an initial cost of $17,650 and a monthly fee of $4,334, while the vendor option has an initial cost of $13,450 and a monthly support fee of $6,000. by setting up an equation and solving for 't', we find that the in-house solution must be in use for at least 3 months to be more cost-effective than the vendor.

Step-by-step explanation:

To determine how long the in-house solution must be in use to be more cost-effective than the vendor option, we need to compare the total costs of each option over time. For the in-house solution, the initial cost is $17,650 and there is a monthly fee of $4,334. On the other hand, the vendor option has a lower initial cost of $13,450 but a higher monthly support fee of $6,000. to find the break-even point, we can set up an equation to represent the total cost of each option over time. Let's assume the time period is represented by 't' months.

For the in-house option, the total cost is given by: Total Cost = Initial Cost + (Monthly Fee x t). So, Total Cost = 17650 + (4334 x t) for the vendor option, the total cost is given by: Total Cost = Initial Cost + (Monthly Support Fee x t). So, Total Cost = 13450 + (6000 x t) to find when the in-house option becomes more cost-effective, we need to find the point at which the total cost of the in-house option is less than the total cost of the vendor option. We can set up the following equation: 17650 + (4334 x t) < 13450 + (6000 x t) simplifying this equation, we get: 4334 x t - 6000 x t < 13450 - 17650. Combining like terms, we have: -1666 x t < -4200.

To isolate the variable t, we divide both sides of the equation by -1666, but since we are dividing by a negative number, the inequality sign flips. So, we have: t > 4200 / 1666. calculating the right side of the equation, we find that t > 2.520. However, since time cannot be measured in decimals, we round up to the next whole number. Therefore, the solution must be in use for at least 3 months to be more cost-effective than the vendor option.