Question

Two different manufacturing processes are being considered for making a new product. The first process is less capital-intensive, with fixed costs of only $49,700 per year and variable costs of $740 per unit. The second process has fixed costs of $391,00 but variable costs of only $160 per unit. a. What is the break-even quantity, beyond which the second process becomes more attractive than the first?

Answer 1

The break-even quantity, beyond which the second process becomes more attractive than the first, is approximately 590 units.

Step-by-step explanation:

To determine the break-even quantity, we need to find the point at which the total costs of the two manufacturing processes are equal. Let's represent the break-even quantity as x. For the first process, the total cost equation is TC = 49700 + 740x. For the second process, the total cost equation is TC = 391000 + 160x. To find the break-even quantity, we set these two equations equal to each other and solve for x:

49700 + 740x = 391000 + 160x

Simplifying the equation:

580x = 341300

x ≈ 589.48

Therefore, the break-even quantity, beyond which the second process becomes more attractive than the first, is approximately 590 units.