(Outsourcing) Pneumatic Shoe Company manufactures various types of shoes for sports and recreational use. Several types require a built-in air pump. Presently, the company makes all air pumps it requires. However, management is evaluating an offer from Cloud Supply Co. to provide air pumps at a cost of $3.60 each. Pneumatic’s management has estimated that the variable production costs of the air pump total $2.75 per unit and that the company could avoid $23,000 per year in fixed costs if it purchased rather than produced the air pumps.

a. If Pneumatic requires 25,000 pumps per year, should it make them or buy them from Cloud Supply Co.?

b. If Pneumatic requires 60,000 pumps per year, should it make them or buy them?

C. Assuming that all other factors are equal, at what level of production would the company be indifferent as to making and buying the pumps?

LO.1