A manager must decide how many machines of a certain type to purchase. Each mach

Question

A manager must decide how many machines of a certain type to purchase. Each machine can process 100 customers per day. One machine will result in a fixed cost of $2,000 per day, while two machines will result in a fixed cost of $4,000 per day. Variable costs will be $18 per customer, and revenue will be $45 per customer.

a. Determine the break-even point for each range. (Round your answers to the next whole number.)

b. If estimated demand is 90 to 120 customers per day, how many machines should be purchased?

Explanation / Answer

a. Breakeven point

One machine = Fixed cost/(revenue per customer - variable cost)

= 2000/(45-18)

= 74.07

~ 75 . (Rounded off to next whole number)

Two machines = 4000/45-18)

= 148.15

~ 149

b. 90 to 120 customers is less than 149, which is the breakeven point for two machines. Therefore, it is not economical to purchase two machines for this volume.

Answer : One machine

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