A Las Vegas, Nevada, manufacturer has the option to make or buy one of its component parts. The annual requirement is 29,000 units. A supplier can supply the parts for $12 each. The firm estimates that it costs $500 to prepare the contract with the supplier. To make the parts in-house, the firm must invest $50,000 in capital equipment and estimates that the parts cost $10 each.

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Questions

a. Assuming that cost is the only criterion, use break-even analysis to determine whether the firm should make or buy the item. What is the break-even quantity? Round your answer to the nearest whole number.

What is the total cost at the break-even point? Round your answer to the nearest dollar.

b. Calculate the total costs for both options at 29,000 units. Round your answers to the nearest dollar.

Total cost (make option): $

Total cost (buy option): $

What is the cost savings for choosing the cheaper option? Round your answer to the nearest dollar.

$