Nagle Electric, Inc., of Lincoln, Nebraska, must replace a robotic Mig welder an

Question

Nagle Electric, Inc., of Lincoln, Nebraska, must replace a robotic Mig welder and is evaluating two alternatives. Machine A has a fixed cost for the first year of

$85,000 and a variable cost of $15, with a capacity of 14,000 units per year. Machine B isslower, with a speed of one-half of A's, but the fixed cost is only $50,000. The variable cost will be higher, at $19 per unit. Each unit is expected to sell for $24.

a) What is the crossover point (point of indifference) for the two machines?

The crossover point for the two machines is _______ units. (Round your response to the nearest whole number.)

b) What is the range of units for which machine A is preferable?

Machine A is preferable at a level of production

_____and ______ units.

units. (Enter your response as a whole number.)

c) What is the range of units for which machine B is preferable?

Machine B is preferable at a level of production ____ and ______ units

(Enter your response as a whole number.)

please explain

Explanation / Answer

Total cost = Fixed cost + Variable cost

Machine A:

Fixed cost = 85000

Variable cost = 15

Capacity = 14000

Machine B:

Fixed cost = 50000

Variable cost = 19

Capacity = 7000

a) The cross over point is when total cost of two machines is equal. Let at 'x' quantity it is same.

So, 85000 + 15*x = 50000 + 19*x

4*x = 35000

x = 8750

b) Range for which Machine A is preferable is 7000 and 14000 units

c) Range for which Machine B is preferable is 1 and 7000 units. Ideally, it should be 8750, but as machine B capacity is lower, it is not possible

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