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Company wants to introduce a new product. The company estimates the variablecosts would be $8 and the fixed costs would be $70,000.

1. A foreign firm has offered to produce the product at $10/unit. if the selling price is to be set at $20, what would be the breakeven point the decision to make or buy

if demand is estimated to be greater than this breakeven point what should be done, make or buy?

Guest Sep 14, 2014

Best Answer 

 #2
avatar+86859 
+5

You have the set-up correct.....!!!

(20 - 8)Q - 70000 = (20-10)Q    simplify this

12Q - 70000 = 10Q                

2Q = 70000

So the break-even point is 35000 units.....

If the company can sell more than this, they should produce the product themselves.

Does this make sense??

CPhill  Sep 14, 2014
 #1
avatar
0

What i have so far: Pm=(20-8)Q-70000=(20-10)-0=Pa  theirfor Q=  

Not sure if correct though now sure how to work through this equation

Guest Sep 14, 2014
 #2
avatar+86859 
+5
Best Answer

You have the set-up correct.....!!!

(20 - 8)Q - 70000 = (20-10)Q    simplify this

12Q - 70000 = 10Q                

2Q = 70000

So the break-even point is 35000 units.....

If the company can sell more than this, they should produce the product themselves.

Does this make sense??

CPhill  Sep 14, 2014

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