Determine the breakeven quantity

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Reference no: EM131004457

Balboa Industries' Electronics Division is trying to reduce supply chain risk by making more responsible make/buy decisions through improved cost estimation. A high-use component (expected usage is 5000 units per year) can be purchased for $25 per unit with delivery promised within a week. Alternatively, Balboa can make the component inhouse and have it readily available at a cost of $5 per unit, if equipment costing $150,000 is purchased. Labor and other operating costs are es- timated to be $35,000 per year over the study pe- riod of 5 years. Salvage is estimated at 10% of first cost and i = 12% per year. Neglect the element of availability (a) to determine the breakeven quantity, and (b) to recommend making or buying at the expected usage level.

Reference no: EM131004457

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