Sam came to you wanting to “make your life easier.” He offers to supply Gizmos to you for a yearly fee of $94,000 and will only charge you $29.47 per Gizmo (delivered). That sounds like it MIGHT be interesting since you employ three (3) employees in your Gizmo line and each one is paid $30,000 annually. You figure it costs your firm $37.88 in materials per Gizmo to produce. You made 450 Gizmos last year. Answer the following four questions (a through d) and show your answer and your work in the space below the question. You may either hand-write your work and submit a scan of the handwritten document or you may enter your work directly onto this Word document and then submit the Word file or use Excel, but show all work.

a. What was the total cost you experienced last year (25%)

b. What would the cost have been if you would have used Sam’s firm last year? (25%)

c. What is the indifference quantity between the two alternatives? (25%)

d. If you expect the Gizmo demand to be 500 orders next year, should you use Sam’s firm? In doing this, how much would he save over the alternative? (25%)