Question

Bob,s candle factory is considering three different manufacturing options. Option A uses hand labor with fixed costs of $10,000 and variable costs of $2.75/candle. Option B uses a combination of hand and automation with fixed costs of $15,000 and variable costs of $1.10/candle. Option C is highly automated with fixed costs of $20,000 and variable costs of $0.75/candle.
a. If demand for Bob's candles is 2500, which option should he pick? _____and what is the cost? ______
b. If demand for Bob's candles is 4500 which option should he , and what is the cost?_________ pick? _________

Answer 1

Answer:

a. If demand for Bob's candles is 2500, which option should he pick?

• OPTION A

and what is the cost?

• $16,875

b. If demand for Bob's candles is 4500 which option should he $19,950

• OPTION B

and what is the cost?

• $19,950

Explanation:

Option A uses hand labor with fixed costs of $10,000 and variable costs of $2.75/candle.

Option B uses a combination of hand and automation with fixed costs of $15,000 and variable costs of $1.10/candle.

Option C is highly automated with fixed costs of $20,000 and variable costs of $0.75/candle.

demand = 2,500 units

option A = $10,000 + ($2.75 x 2,500) = $16,875

option B = $15,000 + ($1.10 x 2,500) = $17,750

option C = $20,000 + ($0.75 x 2,500) = $21,875

demand = 4,500 units

option A = $10,000 + ($2.75 x 4,500) = $22,375

option B = $15,000 + ($1.10 x 4,500) = $19,950

option C = $20,000 + ($0.75 x 4,500) = $23,375