Question 1 You are hired as a consultant for Skater Boys Incorporated, a firm with over five years experience in the skate board industry.Due to changing demand and a move to environmentally friendly products, the company wishes to enter the market with a new eco- friendly finish on its skate boards. Based on your analysis of the company's operations, Skater Boys Inc has three main choices. After careful inspection of their current equipment the company can spend $800 in refurbishment of their old equipment or make major modifications to its operations at a cost of $1100. If these options are not taken, they can also choose to purchase new equipment at a cost of $1800. If the firm chooses to refurbish their existing equipment, materials and labour per skate board will be $1.10 while a material and labour cost of $0.70 per board is associated with the major modification choice. If however the company chooses to buy new equipment, the associated variable cost is estimated to be $0.40 per board. You are required to do the following analysis a. Use a crossover chart to show the cost associated with each decision. b. Which alternative should Skater Boys Inc. choose if they think they can sell more than 3000 skate boards? Give an explanation for your answer c. Given the economic situation, you have advised Skater Boys Inc that the expected demand
Question 1 You are hired as a consultant for Skater Boys Incorporated, a firm with over five years experience in the skate board industry.Due to changing demand and a move to environmentally friendly products, the company wishes to enter the market with a new eco- friendly finish on its skate boards. Based on your analysis of the company's operations, Skater Boys Inc has three main choices. After careful inspection of their current equipment the company can spend $800 in refurbishment of their old equipment or make major modifications to its operations at a cost of $1100. If these options are not taken, they can also choose to purchase new equipment at a cost of $1800. If the firm chooses to refurbish their existing equipment, materials and labour per skate board will be $1.10 while a material and labour cost of $0.70 per board is associated with the major modification choice. If however the company chooses to buy new equipment, the associated variable cost is estimated to be $0.40 per board. You are required to do the following analysis a. Use a crossover chart to show the cost associated with each decision. b. Which alternative should Skater Boys Inc. choose if they think they can sell more than 3000 skate boards? Give an explanation for your answer c. Given the economic situation, you have advised Skater Boys Inc that the expected demand
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 1
You are hired as a consultant for Skater Boys Incorporated, a firm with over five years
experience in the skate board industry.Due to changing demand and a move to
environmentally friendly products, the company wishes to enter the market with a new eco-
friendly finish on its skate boards. Based on your analysis of the company's operations,
Skater Boys Inc has three main choices. After careful inspection of their current equipment
the company can spend $800 in refurbishment of their old equipment or make major
modifications to its operations at a cost of $1100. If these options are not taken, they can also
choose to purchase new equipment at a cost of $1800.
If the firm chooses to refurbish their existing equipment, materials and labour per skate board
will be $1.10 while a material and labour cost of $.70 per board is associated with the major
modification choice. If however the company chooses to buy new equipment, the associated
variable cost is estimated to be $0.40 per board.
You are required to do the following analysis
a. Use a crossover chart to show the cost associated with each decision.
b. Which alternative should Skater Boys Inc. choose if they think they can sell more than
3000 skate boards? Give an explanation for your answer.
c. Given the economic situation, you have advised Skater Boys Inc that the expected demand
will be between 1000 and 2000 skates. Considering this new information, which alternative
should the firm use?Is this the same alternative chosen for part (b) and explain why they may
be the same or different?
d. If the actual demand for skate boards is 4500, how should Skater Boys Inc proceed?
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