Balboa Industries’ Electronics Division is trying to reduce supply chain risk by making more responsible make/buy decisions through improved cost estimation. A high-use component (expected usage is 5000 units per year) can be purchased for

$25 per unit with delivery promised within a week. Alternatively, Balboa can make the component inhouse and have it readily available at a cost of $5 per unit, if equipment costing $150,000 is purchased. Labor and other operating costs are estimated to be $35,000 per year over the study period of 5 years. Salvage is estimated at 10% of first cost and i  12% per year. Neglecting the element of availability

(a) determine the breakeven quantity, and

(b) recommend making or buying at the expected usage level.