Question: how would I go about solving this? 11. A manufacturing firm is considering whether to produce or outsource the production of a new product. If

how would I go about solving this? 11. A

how would I go about solving this?

11. 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 95 per unit, which is a fraction of their $43/unit cost in their own union shop. Regardless where these devices are made, they will sell for $98 each. What is the break-even quantity for each alternative? Solve this problem graphically and algebraically. Answer: (see classnotes of Chapter 2 (supplement A) page 3-19) Overseas: 15,455.95 units, In-house = 17,272.73 units $2,500,000 $2,000,000 Fixed Cost A $1,500,000 - Total Cost A Total Revenue $1,000,000 Fixed Cost B $500,000 Total Cost B $0 1 5 9 13 17 21 25 29 Units (1,000s) Reference: Break-Even Analysis

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