Question

Problem 13.018: Calculate fixed cost for one alternative in order to maintain a breakeven in total costs of two alternatives Process A has a fixed cost of $175,000 per year and a variable cost of $51 per unit. For Process B, 10 units can be produced in 1 day at a cost of $280. If the company's MARR is 10% per year, what will the annual fixed cost have to be for Process B in order for the two alternatives to have the same annual total cost at a production rate of 750 units per year? The annual fixed cost for process B in order for the two alternatives to have the same annual total cost is determined to be $ 35000 -

Answer both questions

Answer 1

1.

Let the fixed cost of B be FC, then

As per given condition

175000 + 51 * 750 = FC + 280 * 750 / 10

FC = 175000 + 38250 - 21000

FC = 192250

2.

Let ads be n, then as per given condition

21 * n = 38500 * (A/P, 8%,3) - 2900 * (A/F, 8%,3) + 63000 + 12*n

9*n = 38500 * 0.388034 - 2900 * 0.308034 + 63000

9*n = 77046.01

n = 77046.01 / 9 = 8560.67 ~ 8561