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 $87,000 and a variable cost of $19, with a capacity of 13,000 units per year. Machine B is slower, with a speed of one-half of A's, but the fixed cost is only $65,000. The variable cost will be higher, at $23 per unit. Each unit is expected to sell for $30. a) What is the crossover point of indifference) for the two machines? The crossover point for the two machines is 5500 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 units. (Enter your response as a whole number.)

Explanation / Answer

Machine FC ($) VC ($/unit) capacity(units) SP ($/unit) A 87000 19 13000 30 B 65000 23 6500 30 a) Say crossover point is x units then, 87000 + 19 x = 6500 + 23 x solving for x: 4x= 22000 x = 5500 units Hence, The Crossover point for the two machines is 5500 units b) For machine A Cost Price = FC+VC Say, machine A is preferable at a x units then, For profit cost should be less than sales (87000 + 19 x) < 30 x (cost 87000 x > 7909 units (rounded off) Hence, Machine A is preferable at a level of production above 7909 units

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