Question 6 You are presented with two options for manufacturing a product, as show in the table below: Maintenance and Operating Salvage value at end of Revenue Costs Initial Cost (S) Option A Option B 298,000 55,000 Costs ($/year) 32,780 5,610 Equipment life (years) equipment life ($) per unit per unit S ($) ($) MARR 9 4 $25,430 $5,130 1.20 0.73 16% 1.20 0.81 16% a) At how many units of production per year are the costs of Option A equal to the costs of Option B (the breakeven point)? b) If your annual production is greater than the breakeven point, which option should you choose?
Question 6 You are presented with two options for manufacturing a product, as show in the table below: Maintenance and Operating Salvage value at end of Revenue Costs Initial Cost (S) Option A Option B 298,000 55,000 Costs ($/year) 32,780 5,610 Equipment life (years) equipment life ($) per unit per unit S ($) ($) MARR 9 4 $25,430 $5,130 1.20 0.73 16% 1.20 0.81 16% a) At how many units of production per year are the costs of Option A equal to the costs of Option B (the breakeven point)? b) If your annual production is greater than the breakeven point, which option should you choose?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
am. 161.
Transcribed Image Text:Question 6
You are presented with two options for manufacturing a product, as show in the table below:
Maintenance
and
Operating
Salvage
value at
end of
Revenue
Costs
Initial Cost
(S)
Option A
Option B
298,000
55,000
Costs
($/year)
32,780
5,610
Equipment
life (years)
equipment
life ($)
per unit
per unit
S
($)
($)
MARR
9
4
$25,430
$5,130
1.20
0.73
16%
1.20
0.81
16%
a) At how many units of production per year are the costs of Option A equal to the costs of Option B (the breakeven point)?
b) If your annual production is greater than the breakeven point, which option should you choose?
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