Question

A company must decide on the type on equipment to buy in order to manufacture a new product line. The company can purchase an all-purpose machine, with fixed costs amounting to $20,000 per year, and it will cost $40 / unit to produce the new line on this machine. It can also buy a special-purpose machine, with fixed costs of $50,000 per year, and the per unit cost on this machine is $30. What is the break-even quantity between the two machines

Answer 1

Answer:

The indifference point is 3,000 units

Explanation:

Giving the following information:

All-purpose machine:

Fixed costs= $20,000 per year

Unitary variable cost= $40

Special-purpose machine:

Fixed costs= $50,000 per year

UNitary variable cost= $30

We need to determine the unit's production point where the two machines are indifferent. First, we need to structure the total cost formulas:

All-purpose= 20,000 + 40x

Special-purpose= 50,000 + 30x

x= number of units

Now, we equal them:

20,000 + 40x = 50,000 + 30x

10x = 30,000

x= 3,000

The indifference point is 3,000 units

Prove:

All-purpose= 20,000 + 40*3,000= $140,000

Special-purpose= 50,000 + 30*3,000= $140,000