Good business managers continually challenge themselves and the departments they run, as to whether or not it makes sense to perform the process (make) part or product internally, or outsource (buy) from another business). One example of this is the process of doing employee payroll. To do this service well, businesses need several really knowledgeable experts, as well as a good payroll information system, and likely IT employees to support the internal system. This is a necessary internal service, but it's costly. Perhaps, they could outsource this payroll process to another business - one that specializes in doing payroll for businesses. So, businesses often prepare cost/benefit analyses to help them make this decision - comparing their internal costs (payroll employees/systems/IT support), to the cost of outsourcing to a company, like ADP, which is recognized as a great service company that performs payroll processing for many businesses - obviously for a fee. Similarly, manufacturers that make products, such as an auto company like Ford, will often compare the costs of producing the parts that go into the manufacturing and assembly of new Fords, to the costs of having another business make those parts. In some cases, outside businesses can perform the service (such as payroll), or manufacture the part (such as a car stereo), better or less expensive than the business can do internally - if that's the case, they 'outsource' the work to the outside company. You've learned about breakeven analysis, which is a common method to find the quantity or number of units where the costs are identical between doing the service or manufacturing internally, vs. outsourcing - this is called a make or buy decision. If the quantity needed is less than the breakeven quantity, then the business will do better to outsource the activity (to avoid making any fixed cost investments). However, there are other factors to consider, besides cost comparison - things like quality, timeliness, and capacity are very important elements, before taking the outsourcing leap. In rarer situations, sometimes a business may have already outsourced something, and then they do an analysis to see if it makes sense to start doing the service or manufacturing in-house. This is called insourcing. Things that cause a business to reassess their outsourcing may include an outsourcing contract that is about to expire, or perhaps quality problems with the parts or services involved, or even new methods and technologies. Be careful not to confuse outsourcing with off-shoring - the latter is simply the same business (like Ford) moving their activities to another country (over seas) like to China, to take advantage of lower labor costs. Another tricky aspect of doing make/buy analysis is knowing the exact quantity that will be needed, as well as the confidence in that quantity - this usually comes from some kind of forecasting activity - such as Ford determining that they will need 100,000 car stereos. If the BE quantity is ends up being, say 90,000 units, and Ford's forecast was overly optimistic at 100,000 units, Ford would have decided to make the stereos, instead of buying them. If they invest in stereo making equipment and hire employees to do this, and the true count ended up being only 60,000, then Ford would be wasting money, compared to deciding to outsource the stereos. So, the take-away for managers, here, is that if the forecasted quantity is sketchy/unreliable, and if the quantity is close to the computed BE quantity - then management really needs to pressure test the forecasted or needed quantity, before making the final decision. This assignment calls for you to do a cost comparison, using 25000 units - given your 'make' cost vs. 'buy' cost. So, you really don't need to compute the breakeven quantity to answer the question, but it would be a good exercise for you to also compute the breakeven quantity, to prove out the notion of 'outsource when the quantity needed is below the BE quantity, and vice versa'. Submit excel file and use excel to compute your answers.

Could you provide an excel sheet that could be used for this? Thanks.