Question

Gabriel Manufacturing must implement a manufacturing process that reduces the amount of toxic by-products Two processes have been identified that provide the same level of toxic by-product reduction. The first process would incur $280,000 of fixed costs and $620 per unit of variable costs. The second process has fixed costs of $125,000 and variable costs of $920 per unit. At what quantity does it not matter which of the two processes is chosen?

Answer 1

Answer:

at 516.67 tons both proces produce the same cost.

Explanation:

we have to solve at which quantity the annual cost of both process is the same:

$280,000 + 620Q = 125,000 + 920Q\\\\280,000 - 125,000 = 920Q - 620Q\\155,000 = 300Q\\Q = 155,000 / 300$

Q = 516,66

at 516.67 tons both proces produce the same cost.

280,000 + 620 x 516.67 = 600.335,4‬

125,000 + 920 x 516.67 =  600.336,4‬