industrial products, inc. has two alternatives for manufacturing 14,500 industrial 100 - horse power…

industrial products, inc. has two alternatives for manufacturing 14,500 industrial 100 - horse power electric motors per year. if done in - house, fixed cost would be $2,500,000 with variable cost at $6,700 per unit. alternative two is to outsource for a total cost of $7,100 per unit.\na. what is the break - even quantity? round your answer to the nearest whole number.\n motors\nb. should the firm make - in - house or outsource? round your answers to the nearest dollar.\ntotal cost if done in - house: $\ntotal cost if outsourced: $\nso, the firm can save $ by select -

industrial products, inc. has two alternatives for manufacturing 14,500 industrial 100 - horse power electric motors per year. if done in - house, fixed cost would be $2,500,000 with variable cost at $6,700 per unit. alternative two is to outsource for a total cost of $7,100 per unit.\na. what is the break - even quantity? round your answer to the nearest whole number.\n motors\nb. should the firm make - in - house or outsource? round your answers to the nearest dollar.\ntotal cost if done in - house: $\ntotal cost if outsourced: $\nso, the firm can save $ by select -

Answer

Explanation:

Step1: Set up break - even equation

Let $x$ be the break - even quantity. The cost of in - house production $C_{in}=2500000 + 6700x$, and the cost of outsourcing $C_{out}=7100x$. At break - even, $C_{in}=C_{out}$, so $2500000+6700x = 7100x$.

Step2: Solve for $x$

Subtract $6700x$ from both sides: $2500000=7100x - 6700x$, which simplifies to $2500000 = 400x$. Then $x=\frac{2500000}{400}=6250$.

Step3: Calculate in - house cost for 14500 units

$C_{in}=2500000+6700\times14500=2500000 + 97150000=99650000$.

Step4: Calculate outsourcing cost for 14500 units

$C_{out}=7100\times14500 = 102950000$.

Step5: Calculate savings

The savings by choosing the cheaper option is $102950000 - 99650000=3300000$. Since $C_{in}<C_{out}$, the firm should make in - house.

Answer:

a. 6250 b. Total cost if done in - house: $99650000 Total cost if outsourced: $102950000 So, the firm can save $3300000 by making in - house.