Reference no: EM132783750
A company is considering two different manufacturing processes for making a new product. Process #1 is less capital intensive, with fixed costs of $100,000 per year and variable costs of $70 per unit. Process #2 has fixed costs of $500,000 annually, with variable costs of $30 per unit.
a. What is the break-even quantity for the two processes?
b. If expected demand was estimated to be 8,500 should you select the first process and the second process?
c. Operations and Engineering have found a way to reduce the cost of the second process, such that the fixed costs for this process decrease from $500,000 to $400,000 annually. All other costs remain the same (1st process fixed = $100,000/year, 1st process variable = $70/unit, 2nd process variable = $30/unit). What is the new break even quantity between the two processes? And does this change your decision in part b above?
You can use the excel solver template, or POM, or your hand to solve these problems.
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