Text Book( Operations and Supply Chain Management by David A. Collier and James R. Evans Second Edition.

1) A company has two alternatives for meeting a customer requirement for 880,000 units of a part used in office printers. If done in-house, the fixed cost would be $1,400,000, with the variable cost at $1.90 per unit. Alternative two is to outsource for a total cost of $3.50 per unit.

a) Determine the break-even point.

b) Determine if they should make the item in-house or outsource it and explain why. Calculating Total cost in-house and total cost outsourced.

HINT:

Q* =(FCO- FCIH)/(VCIH - VCO)

Total cost (TC) = Fixed cost (FC) + Variable cost (VC) x Quantity (Q)

TCI In-house =

TC Outsource =

2. As per our textbook and classroom learning, how can break-even analysis be used to help managers make outsourcing decisions?