[saraheliza]

I'm not sure how to solve this without knowing the number of units being produced. I've solved problems similar to this before, but I've always been given the number of units or cost per unit. Can someone explain this in a relatively easy way?

Super-Quick PCs manufactures laptop computers and is considering whether they should continue to make the hard drives used in their laptops themselves or buy them from an outside supplier. The company has the following production costs related to the hard drives: (1) circuit boards and other components $30,000 (2) wages for assembly line workers $50,000 (3) utilities on the factory $5,000 and (4) rent on the factory $15,000. If Super-Quick purchases hard drives from the supplier, the company would sub-lease a portion of the factory to another company for $5,000. What is the maximum purchase price that Super-Quick should be willing to pay to purchase the hard drives so that it would cost them no more than what they currently spend to make the part?

[CaptainForest]

The first part is to determine what it currently costs to manufacture this product.

They told us that the costs are:
(1) circuit boards and other components $30,000
(2) wages for assembly line workers $50,000
(3) utilities on the factory $5,000
(4) rent on the factory $15,000.

So that is a total of $100,000.


The second part is to determine which costs would be eliminated if we were to outsource.
We wouldn't need the boards and components, 30,000
We wouldn't have to pay workers, 50,000
We wouldn't have to pay utilities since the factory has been shut down, 5,000
We would still have to pay rent of 15,000

Therefore, we would still have 15,000 in costs. But, we would get 5,000 in sub renting, so our cost base would be 10,000

Summary:
Produce it ourselves: 100,000
Outsource: 10,000 + whatever the outsource charges us.

Therefore, you would be willing to spend 90,000 on outsourcing in order to break even.