Question

Mop and Broom Manufacturing has decided to produce a new type of mop. The mop can be made with the current equipment in place. Estimates of fixed costs per year are $40,000, and the variable cost for each mop produced is $21. However, the company is considering the purchase of new equipment that would produce the mop more efficiently. The fixed cost would be raised to $52,000 per year, but the variable cost would be reduced to $17 per unit. The company still plans to sell the mops at $23 per unit. Should Mop and Broom produce the mop with the new or current equipment? Specify the volume of demand for which you would choose each process. (Calculate the following demand ranges. If a range goes to infinity enter "infinity". All boxes must be filled.) From Το Old equipment New equipment

Answer 1

Giseen, Old equipment : fixed cost = $40000 Vanceble cost $21/u New equipment : Fixed cost = $52000 Vonable cost- & 17/4 Now, Total cost (TC) = Fixed cost & X (Variable cost) where X: annual demand → Thora = 40000t 21(*) Th new 2 52000 + 7(x) Now revenue / unit = $23/24

Now , reating total cost :- 40000 +2126) 52000 to (6) sya 12000 & 3000 Old 3000 New 3000 Since tixed cost of old equipment is less have old equipment is to better for oto 3000 units to new equipment is better for 3000 to infinity → From To old a 3000 New 3000 Infinity Now, equating Told to total revenue :- 40000 +14(x) = 234 +xz 20000 Since for x>20000 , old equipment makes profet , but since new equipment has lower cost for x=20000 =) Proderce the mop with new m-