A commercial bakery produces 150,000 cakes per month. Of these, 10,000 are partially customized in some way, for example, with the words “Happy Birthday” written across the top, with room for a name or personalized message to be added later. Currently, the fixed costs attributable to this detailed icing application total $35,000 per year, with a variable cost of $0.30 per cake. Should the bakery outsource this function to another supplier at a fixed cost of $45,000 per year and a variable cost of $0.25 per cake?

a. What will it cost the bakery to outsource the detailed icing process?

b. At what demand level does it make sense economically to outsource the icing process?

c. What additional factors should be considered when making this outsourcing decision?