A global manufacturer of electrical switching equipment (ESE) is considering out

Question

A global manufacturer of electrical switching equipment (ESE) is considering outsourcing the manufacturing of an electrical breaker used in the manufacturing of switch boards. The company estimates that the annual fixed cost of manufacturing the part in-house, which includes equipment, maintenance, and management, amounts to $13 million. The variable cost of labor and materials are $12.00 per breaker. The company has an offer from a major subcontractor to produce the parts for $21.00 per breaker. How many breakers would the electrical switching equipment company need per year to make the in-house option the least costly The company should consume breakers per year to make the manufacturing the part in-house option the least costly. (Enter your response rounded to the nearest whole number.)

Explanation / Answer

Indifference point :

= Difference in fixed costs÷Difference in variable costs

= $13 million÷($21-$12)

= 1,444,444 breakers

If the company consumes minimum these breakers, it can opt for in house option.

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