Downhill Boards (DB), a producer of snow boards, is evaluating a new process for applying the finish to its snow boards. Downhill Boards currently incurs a fixed annual cost of $125,000 and has a variable cost of $0.90 per unit. Annual demand for the snow boards is 160,000. Fast Finish, Inc. (FFI) has made a technological breakthrough in snow board finish application. FFI will apply the finish for $0.23 per unit in variable costs plus a fixed annual cost of $230,000.
a) What will it cost Downhill Boards to outsource the finishing process?
Total Cost from FFI = $ .
$ than insourcing.
b) At what demand level does it make sense economically to outsource the finishing process?
Better to outsource when demand is or more.