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.
A) break-even point = 7,000 units; outsource it
B) break-even point = 7,000 units; make it in-house
C) break-even point = 11,667 units; outsource it
D) break-even point = 11,667 units; make it in-house

Question

Quizplus · Accepted Answer

The break-even point is calculated by dividing the fixed costs by the difference in unit cost when produced in-house versus outsourced. Here, it's $350,000 / ($80 - $30) = 7,000 units. Since the requirement is for 9,000 units, which is above the break-even point, it's more cost-effective to make the item in-house.

A Company Has Two Alternatives for Meeting a Customer Requirement