Justify continued outsourcing to the external supplier

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Reference no: EM134026009

Question

FBL is evaluating the alternative of manufacturing a part that is currently being outsourced from an outside supplier. The relevant information is provided below:

(i) For in-house manufacturing:

Upfront fixed cost = $13,750,000

Variable cost per part = $3875 For purchasing from supplier:

Purchase price per part = $4500

What should be the demand level to justify continued outsourcing to the external supplier?

(ii) If the marketing department expects the demand to be 25,000 parts next year, then what will be the maximum price per part that FBL should be looking to pay to the supplier?

Reference no: EM134026009

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