Question

I need some help with this question I am unsure how it is possible to calculate the number of units if I am not given what the product sells for

Question 2) (30 points) Quatro Hermanas, Inc. is investigating implement ing some new production machinery as part of its operations. Three alternatives have been identified, and they have the following fixed and variable costs: Annual Annual Variable Costs Alternative Fixed Costs per Unit $20.00 5.00 7.50 $100,000 200,000 150,000 Determine the ranges of production (units produced per year) over which each alternative would be recommended up to 30,000 units per year.

Answer 1

Let x be the number of units produced per year.

Total Cost

Machine A, TC_A = $ 20 x + 100,000

Machine B, TC_B = $ 5x + 200,000

Machine C, TC_C = $ 7.5x + 150,000

The firm wants to minimize total cost over all range of x. From the graph we can see there are three breakeven points A & B, B & C and A & C. Only A & C and B & C are necessary to determine the minimum cost alternative over x.

In case of A and C

20x + 100,000 = 7.5x + 150,000

12.5x = 50,000

X = 4000

In case of B and C

5x + 200,000 = 7.5x + 150,000

2.5x = 50,000

X = 20,000

Therefore, our recommendations are

0 < x < 4,000 choose machine A

4,000 < x < 20,000 choose machine C

20,000 < x < 30,000 choose machine B

Please contact if having any query thank you.