Question

Soft Key is trying to determining how best to produce its newest product, DVORK keyboards. The keyboards could be produced in house using either Process A or Process B, or purchase from a supplier. Cost data is given below. For what levels of demand should each process be chosen Fixed Cost $8,000 $20,000 Variable Cost Process A Process B Supplier $10 $20

Answer 1

2000units

Step-by-step explanation:

Cost data

Fixed cost Variable cost

Process A $8000 $10

Process B $20000 $4

Supplier $0 $20

= (Difference in fixed expenses)/(Difference in factor cost per unit)

= ($20,000 - $8,000)/($10 - $4)

= $12,000/$6

= 2,000 units

According to the general guideline of picking, over the traverse point, the procedure with lower variable expense ought to be picked and underneath traverse point, the procedure with lower fixed expense ought to be picked

Lower fixed expense is of procedure A, So, till 2,000 units, process An ought to be picked or more 2,000 units, process B ought to be picked

Answer 2

There is a Lower fixed cost of process A, So, until 2,000 units are not achieved ,the process A should be chosen as priority and above the 2,000 units, process B should be chosen.

Step-by-step explanation:

Cross over point

= ( Difference in fixed costs) / ( Difference in variable cost per unit)

= ($20,000 - $8,000) / ($10 - $4)

= $12,000 / $6

= 2,000 units

As per the general rule of choosing, above the cross over point, the process with lower variable cost should be chosen and below cross over point, the process with lower fixed cost should be chosen

There is a Lower fixed cost of process A, So, until 2,000 units are not achieved ,the process A should be chosen as priority and above the 2,000 units, process B should be chosen