Question

The owners of Whitewater rafting are currently contemplating a manufacturing process (Old Process) that will require an investment of $4,000 and a variable cost of $6 per raft vs. a larger (New Process) initial investment of $20,000 with more automated equipment that would reduce their variable cost of manufacture to $2 per raft. Compare the two manufacturing processes proposed here. For what volume demand should each process be chosen

Answer 1

Answer:

c. From 0 to 4000 choose Old Process, From 4000 to infinity choose New Process

Explanation:

The computation of given question is below:-

Assume Unit for both process = X

At X unit

Process of cost of old goods = 4,000 + 6X

Process of cost of new goods= 20,000 + 2X

So, both cost

$4,000 + 6X = $20,000 + 2X

4X = $16,000

X = $4,000 units

Therefore, Old process should be applied till $4,000 units and after $4,000 units new process should be used so that it make cost effective for the organization.