Problem 13.018: Calculate fixed cost for one alternative in order to maintain a
ID: 2528119 • Letter: P
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 $195,000 per year and a variable cost of $49 per unit. For Process B, 10 units can be produced in 1 day at a cost of $230. 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 5250 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 $Explanation / Answer
Total Cost= Fixed Cost + Variable Cost Total Cost for Process A= $195000 +( $49X 5250)=$452250 Total Cost for Process B= Fixed Cost+ ($230/10X5250)= Fixed Cost+$120750 Total Cost for Process A= Total Cost for ProcessB $452250=Fixed Cost + $120750 Fixed Cost= $452250-$120750 Fixed Cost = $331500 Hence, Fixed Cost for Process B will be : $331500