Insourcing incurs an annual fixed cost of $500,000 and a variable cost of $60 pe
ID: 426097 • Letter: I
Question
Insourcing incurs an annual fixed cost of $500,000 and a variable cost of $60 per unit. Outsourcing incurs an annual fixed cost of $750,000 and a variable cost of $20 per unit. Which of the following statements is TRUE? Check all that apply.
A) Insourcing is cheaper if demand is less than 6250.
B) Outsourcing is not an option.
C)Outsourcing is cheaper if demand is less than 6250.
D)The indifference point is 6250.
E)Insourcing is cheaper if demand is greater than 6250.
F)Insourcing is not an option.
Explanation / Answer
Insourcing Annual fixed cost=$500,000
Variable cost = $60 per unit
Outsourcing annual fixed cost= $750,000
Variable cost = $20per unit
Let the demand be Q ,
Solution :
$500,000 + 60Q = $750,000+20Q
$750,000-$500,000 = 60Q-20Q
$250,000 = 40Q
Q = $250,000/40
= 6250
Answer will be :
D . the indifference point is 6250