Markland Manufacturing intends to increase capacity by overcoming a bottleneck o
ID: 380393 • 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$50,000
for proposal A and
$ 70 comma 000$70,000
for proposal B. The variable cost is
$ 12.00$12.00
for A and
$ 10.00$10.00
for B. The revenue generated by each unit is
$ 20.00$20.00.
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 the required output volume when both vendors have the same cost = N
Revenue in both cases = $20.N
Cost for vendor A = Fixed cost + Variable cost/ unit x N = $50,000 + 12.N
Cost for vendor B = Fixed cost + Variable cost / unit x N = $70,000 + 10.N
Hence,
50000 + 12.N = 70000 + 10.N
Or, 2.N = 20,000
Or, N = 10,000
REQUIRED OUTPUT VOLUME WHEN BOTH VENDORS HAVE SAME COST = 10,000
REQUIRED OUTPUT VOLUME WHEN BOTH VENDORS HAVE SAME COST = 10,000