The service director has asked the outsource company to reduce the per sample costs by 25% across the board over the 8-year study period. What will this do to the breakeven point?

Mid-Valley Industrial Extension Service, a state- sponsored agency, provides water quality sampling services to all business and industrial firms in a 10-county region. Just last month, the service purchased all necessary lab equipment for full in-house testing and analysis. Now an outsourcing agency has offered to take over this function on a per sample basis. Data and quotes for the two options have been collected. The MARR for government projects is 5% per year, and a study period of 8 years is chosen.

In-house: Equipment and supplies initially cost $125,000 for a life of 8 years, an AOC of $15,000, and annual salaries of $175,000.

Sample costs average $25 each. There is no significant market value for the equipment and supplies currently owned.

Outsourced: Contractors quote sample cost averages of $100 for the first 5 years, increasing to $125 per sample for years 6 through 8.