Yannis Corporation is trying to decide whether to produce its own subassemblies or outsource them. In-house production costs would include an annual fixed cost of $250,000, materials costs per unit of $7, and labor costs per unit of $5. Teshtown, Inc. has agreed to provide the subassemblies for an annual cost of $400,000 and a unit cost of $8 per subassembly. Over what ranges of demand is each option best

The range of demand that will be best for each option is that INSOURCING will be optimal between 1 and 37,500 units while OUTSOURCING on the other hand will optimal for annual demand of ≥37,500 units

Explanation:

Calculation for Over what ranges of demand is each option best

Using this formula

Range of demand = (Annual Fixed Cost-Annual cost ) / [Unit cost per subassembly-(Materials costs per unit +Labor costs per unit)

Let plug in the formula

Range of demand = ($250,000 - $400,000)/[$8 - ($7+$5)]

Range of demand = ($250,000 - $400,000)/($8-$12)

Range of demand =$150,000/$4

Range of demand = 37,500

Based on the above calculation the range of demand that will be best for each option is that INSOURCING will be optimal between 1 and 37,500 units while OUTSOURCING on the other hand will optimal for annual demand of ≥37,500 units