Question

4. Zodiac Furniture is considering the production of a ros B. The chairs chairs can be produced in-house using either be purchased from an outside supplier process A or process B. The chairs can also . Specify the levels of demand for each processing e given the costs in the table. (20 Points) (Hint: this is a break-even for cost example Variable Cost Fixed Cost $1,000 $2,000 So $30 Process A Process EB Outside Supplier $40 S50

Answer 1

Let point of indifference between Process A and B is x

So, 1000+30x = 2000+40x

or, 30x-40x = 2000-1000

or, x = -100

as x can not be -ve because x represents number of units, we can say process B is never better than process A in terms of cost perspective

Let point of indifference between process A and Supplier is y

So, 1000+30y = 50y

or, 20y = 1000

or, y = 50

for number of units 1-49 Supplier is best
For number of units = 50 Process A and supplier are equal
For number of units >50 Process A is best

Process B is never best