Markland Manufacturing intends to increase capacity by overcoming a bottleneck o
ID: 326573 • Letter: M
Question
Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs are $ 50 comma 000 for proposal A and $ 80 comma 000 for proposal B. The variable cost is $ 12.00 for A and $ 10.00 for B. The revenue generated by each unit is $ 24.00. ?HINT: Find the crossover point where costs are the same for both options. Set up your total cost formula for each option with number of units as the variable. Make the two? formula's equal and solve for units. See Blackboard for an example of this type of problem. Vendor A and Vendor B have the same cost when the output volume? = nothing units ?(round your response to the nearest whole? number).
Explanation / Answer
Let at output P units vendor A and vendor B have the same cost
Total cost = Fixed cost + Variable cost
Total cost for vendor A = 50,000 + 12*P
Total cost for vendor B = 80,000 + 10*P
At crossover point, total cost of vendor A is equal to total cost of vebdor B
50,000 + 12*P = 80,000 + 10*P
P = 15,000
Vendor A and Vendor B have the same cost when the output volume = 15,000 units