Problem:
Zipco is in serious negotiations to purchase a chunking machine that will enable them to perform their own chunking at $1.25 per unit. They currently have their chunking outsourced at a cost of $1.75 per unit and a fixed cost of $50,000. Their marketing team feels that they can sustain an annual volume of 15,000 units.
Required:
Question 1) What is the maximum fixed cost that Zipco should be willing to bear in order to perform their own chunking?
A) $55,500
B) $52,500
C) $50,000
D) $57,500
Solve the problem and show all work.