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Gabriela Manufacturing must decide whether to insource or outsource a new toxin-free miracle carpet cleaner...

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Finance

Gabriela Manufacturing must decide whether to insource or outsource a new toxin-free miracle carpet cleaner that works with its Miracle Carpet Cleaning Machine. If it decides to insource the product, the process would incur $300,000 of annual fixed costs and $1.50 per unit of variable costs. If it is outsourced, a supplier has offered to make it for an annual fixed cost of $120,000 and a variable cost of $2.25 per unit in variable costs.

(a) Given these two alternatives, determine the indifference point (where total costs are equal).

(b) If the expected demand for the new miracle cleaner is 300,000 units, what would you recommend that Gabriela Manufacturing do?

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