A bicycle company is exploring which of the two following methods they should use to provide bicycle rack to its customers.

A. making the rack on their own with intial cost ( fixed cost ) of 20000 per year and production cost ( variable cost) of $5000 per rack .

OR

B. outsource the bicycle rack production with an intial cost (fixed cost) of 2000 per year & promotion cost ( variable cost ) of $80 per rack,

Q1. if the customers 500 rack per year, calculate the total cost to make and the total cost to buy over 1 year period.

comment whether it is more cost effective for the company to make or to buy the bicycle racks.

Q2. Calculate the breakeven point ( i.e number of the rack) for the company over 1-year period.