C&A is a manufacturer of solar panels. The company is currently deciding between
ID: 459842 • Letter: C
Question
C&A is a manufacturer of solar panels. The company is currently deciding between three new methods for making these panels. The first process is estimated to have a fixed cost of $100,000 and a variable cost of $500 per unit. The second process is estimated to have a fixed cost of $180,000 and a variable cost of $400 per unit. The third process is estimated to have a fixed cost of $500,000 and a variable cost of $200 per unit. Which of the following statement is/are TRUE? Check all that apply.
C&A should choose process two if demand is between 800 and 1,600.Explanation / Answer
consider process 1 cost:
fixed cost = 100000
Variable cost = 800 * 500 to 1600 * 500 = 400000 to 800000
So Total cost of process 1 = 500000 to 900000
process 2 if considered
fixed cost = 180000
variable cost = 800 * 400 to 1600 * 400 = 320000 to 640000
Total cost is between = 500000 to 820000
process 3 cost if considered
fixed cost = 500000
variable cost for 800 to 1600 units = 800 *200 to 1600 *200 = 160000 to 320000
Total Cost = 660000 to 820000
Statement 1: C&A should choose process two if demand is between 800 and 1600
Yes so statement " C&A should choose process two if demand is between 800 and 1,600. " is true. process 2 costing lowest of $500000 for 800 units demand and lowest $820000 for 1600 units demand.
Statement 2: Statement " C&A should choose process three if demand is between 800 and 1,600." is not true from above observations. because the lowest total cost in process 3 is $ 660000 which is more than lowest cost of process 2 for the demand of 800 units .
Statement 3: . Statement " C&A should choose process two if demand is greater than 800." is true ,Because the total cost of process 2 for units more than 800 to 1600 will be equal to or greater the cost of process 1 as per the findings above.
Statement 4 : Statement "
" is true. because the fixed cost of process 1 is lesser than that of process 2. If the demand is 800 units then the total costs of process 1 and 2 are same . but if demand is lesser than 800 units then the total cost of process 1 will be lesser than process 2 .
Statement 5 :
Statement " C&A should choose process three if demand is greater than 1,600." is true. If the demand is 1600 units then total cost of process 3 and process 2 is same i.e . $ 820000 ( least value for 1600 units ) which is lesser than the process 1 i.e $ 900000.
If number of units increases further the variable cost of process 3 will be far lesser than that of process 2 and process 1 .. So that total cost will also be far lesser than other two processes.
Statement 6 : statement
" C&A should choose process one if demand is greater than 800." is false. Because as the number of units become more than 800 units the total cost of process 2 becomes lesser than that of process 1 as per the above findings.
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