Answer:
1. Break even quantity is 18,125 units
2. Cost to make 28,000 units = $ 775,000
3. Total costs to buy 28,000 units = $ 696,000
4. Savings by using low cost option ( buy from outside) $ 79,000
Explanation:
Computation of Break even point
Variable cost to make equipment in house                $ 25 per unit
Cost to purchase the unit from outside                       <u>$ 17 per unit</u>
Differential Cost per unit                                               <u>$ 8 per unit</u>
Fixed costs to be paid to outside supplier                  $ 220,000
Fixed costs to  be incurred in house                            <u>$  75,000</u>            
Incremental fixed costs                                                 $ 145,000
Break even point - Differential in fixed costs / Differential cost per  unit
$ 145,000/ $ 8 =                                                            18,125 units      
Computation of costs to make 28,000 units
Variable costs per unit -  $ 25 per unit
Units to be produced   -  28,000 units
Total Variable costs  $ 25 * 28,000 units                   $ 700,000
Fixed costs                                                                     $ <u> 75,000</u>
Total costs to make 28,000 units                               $ 775,000       
                                
Computation of costs to buy 28,000 units
Variable costs per unit -  $ 17 per unit
Units to be produced   -  28,000 units
Total Variable costs  $ 17 * 28,000 units                    $  476,000
Fixed costs                                                                    $  <u>220,000</u>
Total costs to make 28,000 units                              $ 696,000  
Computation of savings
Buying 28,000 units                                                    $ 775,000
Making 28,000 units                                                   <u>$ 696,000</u>
Savings from buying from outside                              $ 79,000