Question

Spartan castings must implement a manufacturing process that reduces the amount of particulates emitted into the atmosphere. Two processes have been identified that provide the same level of particulate reduction. The first process is expected to incur $350,000 of fixed cost and add $50 of variable cost to each casting Spartan produces. The second process has fixed costs of $150,000 and adds $90 of variable cost per castings.

What is the break-even quantity beyond which the first process is more attractive?
What is the difference in total cost if the quantity produced are 10,000?

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

The first process;

Fixed costs= $350,000

Variable cost= $50

The second process:

Fixed costs= $150,000

Variable costs= $90

To calculate the break-even quantity we need to use the following procedure:

350,000 + 50*X= 150,000 + 90*X

X= number of units

200,000=40X

5,000=X

From 1 to 4,999 units, the second process is more convenient regarding costs. From 5001 to infinity the first process is more cost-efficient.

10,000 units:

First process= 350,000 + 50*10,000= $850,000

Second process= 150,000 + 90*10,000= $1,050,000