House production or outsourcing

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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 $950,000 per year, but if they outsource overseas there will be a $1.5 million cost per year. The advantage of outsourcing overseas is the variable cost of 950 per unit. The variable cost of making it in their own shop is $43/unit. Regardless where these devices are made, they will sell for $98 each. What is the break-even quantity for each alternative?

At what quantity does it make no difference whether the product is produced in house or outsourced?

If you had an order for 16,000 units would you recommend in-house production or outsourcing?

Reference no: EM131277563

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