A distributor of fasteners is opening a new plant and considering whether to use a mechanized process or a manual process to package the product. The manual process will have a fixed cost of $36,234 and a variable cost of $2.14 per bag. The mechanized process would have a fixed cost of $84,420 and a variable cost of $1.85 per bag. The company expects to sell each bag of fasteners for $2.75.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

just need help with d and e

Speak

A distributor of fasteners is opening a new plant and considering whether to use a mechanized
process or a manual process to package the product. The manual process will have a fixed cost of
$36,234 and a variable cost of $2.14 per bag. The mechanized process would have a fixed cost of
$84,420 and a variable cost of $1.85 per bag. The company expects to sell each bag of fasteners for
$2.75.
a) What is the break-even point for the manual process (in units)?
b) What is the break-even point for the mechanized process (in units)?
c) A point of indifference for two processes is quantity at which each process generates the same
amount of profit (review video). What is the point of indifference for the two processes?
(Hint: 1) Use equations to set profit of manual process equal to mechanized process and solve
for quantity; 2) (Excel) If you have a break-even for each process - have only one cell that
represents quantity that be used to calculates costs/revenues for each process and use Goal
Seek to calculate quantity that would set the difference to zero).
d) Which process would you select if the quantity that is sold is greater than the quantity calculated
as the point of indifference?
e) Which process would you select in the quantity sold is less than the quantity calculated as the
point of indifference?
Transcribed Image Text:A distributor of fasteners is opening a new plant and considering whether to use a mechanized process or a manual process to package the product. The manual process will have a fixed cost of $36,234 and a variable cost of $2.14 per bag. The mechanized process would have a fixed cost of $84,420 and a variable cost of $1.85 per bag. The company expects to sell each bag of fasteners for $2.75. a) What is the break-even point for the manual process (in units)? b) What is the break-even point for the mechanized process (in units)? c) A point of indifference for two processes is quantity at which each process generates the same amount of profit (review video). What is the point of indifference for the two processes? (Hint: 1) Use equations to set profit of manual process equal to mechanized process and solve for quantity; 2) (Excel) If you have a break-even for each process - have only one cell that represents quantity that be used to calculates costs/revenues for each process and use Goal Seek to calculate quantity that would set the difference to zero). d) Which process would you select if the quantity that is sold is greater than the quantity calculated as the point of indifference? e) Which process would you select in the quantity sold is less than the quantity calculated as the point of indifference?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Cost of Production
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education