Mop and Broom Manufacturing has decided to produce a new type of mop. The mop ca
ID: 459890 • Letter: M
Question
Mop and Broom Manufacturing has decided to produce a new type of mop. The mop can be made with the current equipment in place. Estimates of fixed costs per year are $39,000, and the variable cost for each mop produced is $19. However, the company is considering the purchase of new equipment that would produce the mop more efficiently. The fixed cost would be raised to $48,000 per year, but the variable cost would be reduced to $15 per unit. The company still plans to sell the mops at $24 per unit. Should Mop and Broom produce the mop with the new or current equipment? Specify the volume of demand for which you would choose each process. (Calculate the following demand ranges. If a range goes to infinity enter "infinity". All boxes must be filled.)
From To Old equipment New equipmentExplanation / Answer
Point of indifference between old equipment and new equipment
Old Equipment = New Equipment
FC + VC * (Q) = FC + VC * (Q)
39,000 + 19 Q = 48,000 + 15 Q
4Q = 9000
Q = 2250
TC = FC + (VC * Q)
Old Equipmnet = From 0 to 2250
New Equipment = From 2250 to Infinity
Q TC for Old Equipment TC for New Equipment 2000 77000 78000 2250 81750 81750 5000 134000 123000Related Questions
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