Question

a product is currently made in a process-focused shop, where fixed costs are $20,000 per year and variable costs are $50 per unit. the firm is considering a fundamental shift in process, to repetitive manufacturing. the new process would have fixed costs of $60,000, and variable costs of $25. what is the crossover point for these processes?

Answer 1

The crossover point is the point at which the total cost of using one process equals the total cost of using another process. In this case, the crossover point is 1,600 units.

Step-by-step explanation:

The crossover point is the point at which the total cost of using one process equals the total cost of using another process. In this case, we have two processes: process-focused shop and repetitive manufacturing.

Let's calculate the crossover point:

1. For the process-focused shop:
   Fixed costs = $20,000 per year
   Variable costs = $50 per unit
2. For the repetitive manufacturing process:
   Fixed costs = $60,000
   Variable costs = $25 per unit

To find the crossover point, we set the total costs of both processes equal to each other and solve for the quantity:
$20,000 + $50q = $60,000 + $25q

Simplifying the equation:

$25q - $50q = $60,000 - $20,000

$25q = $40,000

Dividing both sides by $25:

q = 1,600

Therefore, the crossover point is 1,600 units. At this quantity, the total costs for both processes are equal.