Karla's candle factory is considering two different machines. Machine A is highly automated with FC of...
Karla's candle factory is considering two different machines. Machine A is highly automated with FC of $25,000 and VC of $.1/candle. Machine B is actually no machine but rather hand labor with FC of $10,000 and VC of $.5/candle. If demand for Karla's candles is 25,000, which machine should she pick?
Homework Answers
If demand for Karla's candles is 25,000
Total Cost in Machine A = 25000 + 0.1*25000 = $ 27500
Total Cost in Machine B = 10000 + 0.5*25000 = $ 22500
Hence She Should pick Machine B for the above demand
Note:
Break Even Point where either machine can be purchase
Demand = (25000-10000)/(0.5-0.1) = 37500
Hence if Demand is equal to 37500 Unit any machine can be Purchase
- Demand = 37500, => Machijne A or Machine B can be purchased
- Demand >37500, => Machine A should be Purchased
- Demand < 37500 , => Machine B should be Purchased
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