When Break-Even Analysis Is Applied to an Outsourcing Decision, the Breakeven

question 48

Multiple Choice

When break-even analysis is applied to an outsourcing decision, the breakeven quantity is

• A)the ratio of fixed costs to the difference between variable outsourcing cost and variable in-house production cost
• B)the ratio of the difference between variable outsourcing cost and variable in-house production cost to fixed costs
• C)the product of the variable costs times the fixed costs
• D)the product of the variable costs times the production quantity

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Definitions:

Expected Value

The calculated average of all possible outcomes of a random variable, weighted by their probabilities.

Risk Premium

The extra return above the risk-free rate demanded by investors for holding a risky asset.

Fire Insurance

A type of property insurance that covers damage and losses caused by fire, providing financial compensation to the insured.

Utility Function

A formula used to quantify the satisfaction consumers derive from consuming various goods and services.