Break-even analysis and customer lifetime value Based on the information show below: Costs Make Option Buy...

Break-even analysis and customer lifetime value

Based on the information show below:

Costs	Make Option	Buy Option
Fixed Cost	$100,000	$10,000
Variable Cost	$10	$20

Find the break-even quantity and the total cost at the break-even point.
If the requirement is 15,000 units, is it more cost-effective for the firm to buy or make the components?

Expert Solution

At the breakeven point, Total cost for Make option = Total cost for Buy option

(Fixed Cost + Variable cost * X) for Make option = (Fixed Cost + Variable cost * X) for Buy option where X is the breakeven point

100,000 + 10*X = 10,000 + 20*X

X = 9000 units

If the quantity is higher than 9000 units, the option with lesser variable cost is preferable and cost effective i.e. for quantity > 9000, Make option is cost effective.

Similarly, If the quantity is lower than 9000 units, the option with lesser Fixed cost is preferable and cost-effective i.e. for quantity < 9000, Make option is cost-effective.

Since Q = 15000, which is more than 9000 units, Make option is cost-effective.

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keosha answered 5 months ago

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