Jeremy is evaluating the operational costs of the manufacturing processes for sp

Question

Jeremy is evaluating the operational costs of the manufacturing processes for specific components of a wireless home security system. The same components are produced at plants in New York (NY) and Los Angeles (LA). The records for the last 3 years from NY report a fixed cost of $400,000 per year and a variable cost of $95 per unit in year 1, decreasing by $3 per unit per year. The LA reports indicate a fixed cost of $750,000 per year and a variable cost of $50 per unit, increasing by $4 per unit per year. If the trends continue, how many units must be produced in year 4 for the two processes break even?

Explanation / Answer

for NY

year 4 fixed cost = 400000

year 4 variable cost = 86

for LA

year 4 fixed cost = 750000

year 4 variable cost = 62

let x be the units produced

=>

400000 + 86x = 750000 + 62x

=>

x = 14583 units

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