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A company has two alternatives for meeting a customer requirement for 9,000 units of a specialty molding. If done in-house, fixed cost would be $350,000, with variable cost at $30 per unit. If outsourced, the cost is $80 per unit. Determine the break-even point and determine if they should make the item in-house or outsource it?

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mltn1980

Answer:

Determine the break-even point and determine if they should make the item in-house or outsource it?

  • Break Even Point

Quantity TOTAL Income Statement Unit

9.000  $ 620.000 Total Net Sales $ 69

The company should make the product in-house because it's cheaper than the outsource it.

Explanation:

  • The result of the comparative method of production gives as best option the production in-house.

The break even point it's achieve with the following conditions:

Quantity     9.000  

TOTAL     Income Statement Unit

$ 620.000 Total Net Sales       $ 69

-$ 270.000 Variable Cost          -$ 30

$ 350.000 Contributing Margin $ 39

-$ 350.000 Anual Fixed Costs  

and when the production it's outsourced the situation it's as follow:

Quantity     9.000  

-$ 720.000 Variable Cost -$ 80

-$ 720.000 Contributing Margin -$ 80

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