Question: Break-even Analysis :

The National Highway Transportation Safety Administration has determined that carrying a passenger on a motorcycle is unsafe at any speed. In response, the Harley-Davidson Motorcycle Company (H-D) has decided to start offering motorcycle sidecars as an option, and must decide whether to produce its own sidecars or outsource the production instead. A sidecar allows the passenger to ride next to the motorcycle instead of riding on the motorcycle with the operator.

H-D expects the demand for sidecars to be 10,000 units a year. To be a sidecar manufacturer, H-D will need to lease a building and spend $1,000 to produce each sidecar. The rental cost will be the same from year to year. By outsourcing, H-D can avoid the rental cost but will have to spend $1,200 per sidecar to have another company produce them.

How high would the annual rental cost need to be for H-D to prefer outsourcing to in-house production?

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