Question: Blackbird manufacturing outsourced one of the components of their product to a supplier. The current purchase price is $1500 per unit. Efforts to standardize parts succeed to the point that this same component now can be used in five different products. Annual component use should increase from 150 to 750 units. Management wonders whether it is time to make the component in-house, rather than to continue buying it from the supplier. Fixed costs would increase by about $40000 per year for the new equipment and tooling needed. The cost of raw material and variable overhead would be about $1100 per unit, and labor costs would be $300 per unit produced.

a. Should Blackbird make rather than buy?

b. What is the break-even quantity?

c. What other considerations might be important?