A U.S.-based device manufacturer is considering outsourcing the production of the specialty batteries that power its home medical devices. The fixed costs related to battery production are $275,000 per year and the variable cost is $0.50 per unit. A nearby battery manufacturer has offered to make the batteries for an annual fixed cost of

$150,000 and a variable cost of $0.80 per unit.

a. Given these two alternatives, determine the indifference point

(where total costs are equal).

b. If the expected demand for the home medical device is 300,000 units, what would you recommend that the device manufacturer do?