A Manufacturing Firm Is Considering Whether to Produce or Outsource

Essay

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.