Coffee Plus is currently insourcing all its coffee makers with a yearly fixed cost of 7 million and a variable cost per unit of 3 dollars. An outsourcing provider has offered to manufacture the coffee makers for a yearly fixed cost payment of 3 million and a variable cost per unit of 8 dollars. Coffee Plus faces a yearly demand of 1.5 million coffee makers.
1. Using the break even model should Coffee Plus outsource or continue to insource the coffee makers?
2. What is the break even point in units?
Please see my response below.
Let us calculate the break-even point under the two options
7M + ...
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