Answered

Discover a wealth of knowledge at Westonci.ca, where experts provide answers to your most pressing questions. Explore comprehensive solutions to your questions from knowledgeable professionals across various fields on our platform. Connect with a community of professionals ready to provide precise solutions to your questions quickly and accurately.

Worthington Machining must decide whether to purchase Process A with specialized metal folding equipment needing two employees to operate it or Process B with general purpose folding equipment requiring five employees. Process A requires a fixed cost of $1,430,000 and a variable cost of $14.32 per metal panel. Process B requires a fixed cost of $820,000 and a variable cost of $20.05. Process A is more automated than Process B. What is the break-even quantity between these two processes

Sagot :

facundobuzzetti

Answer:

The indifference point is 106,457 units.

Explanation:

Giving the following information:

Process A:

Fixed cost= $1,430,000

Variable cost= $14.32 per metal panel.

Process B:

Fixed cost= $820,000

Variable cost= $20.05 per metal panel.

To calculate the indifference point between two processes, first, we need to formulate the total cost equation for each process:

Process A:

Total cost= 1,430,000 + 14.32*x

Process B:

Total cost= 820,000 + 20.05*x

x= number of units

Now, we need to equal both formulas and isolate x:

1,430,000 + 14.32x = 820,000 + 20.05x

610,000 = 5.73x

x= 106,457

The indifference point is 106,457 units.

We hope this was helpful. Please come back whenever you need more information or answers to your queries. We appreciate your time. Please revisit us for more reliable answers to any questions you may have. Westonci.ca is here to provide the answers you seek. Return often for more expert solutions.