Describe how you would go about analyzing a make-or-buy decision when:

1. Your in-house production capability is not being used to full capacity.

2. You do not have the in-house production capability but could acquire it.

3. You have the in-house capability, but demand for its use exceeds full capacity.

Suppose a company has a contribution margin of 40 percent and total fixed costs of $3 million per year:

1. What is its break-even point in revenue?

2. If its fixed costs increase by 10 percent, and its contribution margin remains unchanged, by what percentage of revenue does its breakeven point increase?

3. By how much would its contribution margin increase if it could raise prices by 3 percent with no changes in variable or fixed costs?