Mid-Valley Industrial Extension Service, a state-sponsored agency, provides water quality sampling services to all business and industrial firms in a 10-county region. Last month, the service purchased all necessary lab equipment for full in-house testing and analysis. Now, an outsourcing company has offered to take over this function on a per-sample basis. Data and quotes for the two options have been collected. The MARR for government projects is 5% per year and a study period of 8 years is chosen.
In-house: Equipment and supplies initially cost $125,000 for a life of 8 years, an AOC of $15,000, and annual salaries of $175,000. Sample costs average $25. There is no significant salvage value for the equipment and supplies currently owned.
Outsourced: Cost averages $100 per sample for the first 5 years, increasing to $125 per sample for years 6 through 8.
The service director has asked the outsource company to reduce the per sample costs by 25% across the board over the 8 years. Will this increase or decrease the breakeven point? (Hint: Look carefully at your graph from the previous problem before answering.) Determine the breakeven point by hand and using your spreadsheet.
By hand: It will raise the breakeven point. Outsourcing will cost $75, increasing to
$93.75, which is an $18.75 increase per sample in years 6-8. Resolve for N.
-125,000(A/P,5%,8) – 190,000 -25N = -75N – 18.75N(F/A,5%,3)(A/F,5%,8)
[50 + 18.75(3.1525)(0.10472)]N = 125,000(0.15472) + 190,000
56.19N = 209,340
N = 3726 tests per year
By spreadsheet: Simply change the entries in the cost cells for outsourced. New
breakeven is approximately 3700 tests per year, as calculated above
 ANSWER.png)
You might also like to view...
In a(n) ____________________ branch, the SFC program checks each path from left to right; the first path with a true transition is executed and all others are ignored.
Fill in the blank(s) with the appropriate word(s).
Not counting birds, rats, and mice, which of these animals are MOST often used in laboratory experiments, according to the Animal Welfare Enforcement Report?
A) rabbits B) guinea pigs C) hamsters D) primates
The common fish aquarium is not an appropriate habitat for a gerbil
Indicate whether the statement is true or false
Individuals who deal with the chemistry of fats in chicken skins are entomologists
Indicate whether the statement is true or false