Answer:
Supplier= From 1 to 799 units
Process A= 801 to 1,999 units
Process B= 2,001 to infinity
Explanation:
Giving the following information:
Process A:
Fixed costs= $8,000
Variable cost= $10
Process B:
Fixed costs= $20,000
Varaible cost= $4
Supplier:
Buying price= $20
First, we need to determine the cost formula for each process:
Process A= 8,000 + 10x
Process B= 20,000 + 4x
To determine the indifference point, we need to determine the value of X for each process:
Process A= Process B
8,000 + 10x= 20,000 + 4x
6x= 12,000
x= 2,000 units
To prove it:
Process A= 8,000 + 10*2,000= $28,000
Process B= 20,000 + 4*2,000= $28,000
<u>From 2,001 units and up, Process B is cheaper than Process A, because the unitary variable cost is lower.</u>
Now, we have to determine the level of demand for Process A and the supplier.
Supplier= 20x
Process A= Supplier
8,000 + 10x= 20x
8,000= 10x
800= x
To prove:
Process A= 8,000 + 10*800= $16,000
Supplier= 20*800= $16,000
<u>From 801 units to 1,999 Process A is cheaper than the Supplier and Process B.</u>
