Homework Answers
Let the volume of output = Q
For make option
- Fixed cost (FC) = $7500
- Variable cost (VC) = $4
For buy option
- Fixed cost (FC) = $1500
- Variable cost (VC) = $9
The break even point is that point or volume of output at which the total cost for both the alternatives is equal
So the break even point can be calculated through the following equation
Total cost for make option = Total cost for buy option
=> FC + (Q X VC) = FC + (Q X VC)
= > 7500 + (Q X 4) = 1500 + (Q X 9)
=> 7500 + 4Q = 1500 + 9Q
=> 9Q -4Q = 7500-1500
=> 5Q = 6000
=> Q = 6000/5
=> Q = 1200 units
So the answer is option a
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