A firm has a computer which it uses for a variety of purposes. One of the major costs associated with the computer is software development (writing computer programs). The vice
president for information system wants to evaluate whether it is less costly to have his own
programming staff or to have programs developed by a software development firm. The costs
of both options are a function of the number of lines of code (program statements). The vice
president estimates the in-house development costs Rs. 1.50 per line of code. In addition,
annual overhead costs for supporting the programmers equal Rs. 30,000. Software developed
outside the firm costs, on average, Rs. 2.25 per line of code.
a) How many lines of code per year make costs of two options equals?
b) If programming needs are estimated at 30,000 lines per year, what are the costs of the
two options?
c) In part b what would the in-house cost per line of code have to equal for the two
options to be equally costly?