Answer:
Cost of in house production at 25000 units= $606250
Cost of outsourcing option at 25000 units= $750000
Thus, Marine international should produce the filter in house at a demand level of 25000 filters as the cost of in house production ($606250) is less than that of the outsourcing option ($750000).
Explanation:
To decide whether to outsource or not will depend on the total cost of each option incurred under certain production or demand level. The option providing the lowest total cost at that level will be chosen.
We first need to determine the cost of each option and see where the total cost for each item equates.
Cost of in house production = 300000 + 12.25x
Where, x is the number of units.
Cost of in house production = 300000 + 12.25 (25000)
Cost of in house production = $606250
Cost of outsourcing option = 30x
Cost of outsourcing option = 30 (25000)
Cost of outsourcing option = $750000
Thus, Marine international should produce the filter in house at a demand level of 25000 filters as the cost of in house production ($606250) is less than that of the outsourcing option ($750000).
