Question

SoldByAir provides drone services to the real estate industry, both residential and commercial. The purchasing manager is getting ready to renegotiate the contract with their security services provider. The current security provider SecureAll quoted $900,000 per year. The purchasing manager is analyzing the costs associated with bringing the security services inhouse instead of outsourcing to SecureAll. The salary and benefits package for a full-time security services manager is estimated to be $100,000. Other fixed costs are estimated to be $30,000/year. 4 security guards are needed. The wages and benefits for the security guards is $21/hour for each guard. What is the crossover point in hours? (Round to the nearest whole number, no decimal places, enter only numeric value)

Answer 1

Answer:

The indifference point is 22,381 hours a year.

Explanation:

Giving the following information:

SecureAll:

Fixed costs= $900,000

In house:

Fixed costs= (100,000*4) + 30,000= $430,000

Variable costs= $21 an hour

First, we need to structure the cost formula for each option:

SecureAll= 900,000

In-house= 430,000 + 21*x

X= number of hours

Now, to calculate the indifference point, we need to equal both formulas and isolate X:

900,000= 430,000 + 21x

470,000/21= x

22,381= x

The indifference point is 22,381 hours a year.