Dave Flatch, CEO of Flatch’es Latches Hardware Distributors, is trying to decide if it makes sense to outsource their warehouse order picking activity. Currently, Dave employs three order pickers __each__ with an annual salary of $29,000. In addition, Dave estimates the cost per order picked is around $5 each (for packing supplies and other incremental expenses). Pickers Unlimited claims that they will pick orders for a fixed (one time) fee of $150,000 and will charge only $3.25 per order picked. Last year, a total of 34,000 orders were picked in Dave’s warehouse.

a. What was the total cost Flatch experienced last year due to the order picking function? (25%)

b. What would the cost have been if Flatch’es Latches would have used Pickers Unlimited last year? (25%)

c. What is the indifference quantity between the two alternatives? (25%)

d. If Flatch expects the picking volume to be 37,500 orders next year, should he use Pickers Unlimited? In doing this, how much would he save over the alternative? (25%)