Question

Consider a situation where we have Process A that has fixed costs of $1000 and variable costs of $5 per unit; and Process B that has fixed costs of $500 and variable costs of $15 per unit. We also have Process C whose fixed cost is $1500 with $3/unit in variable costs. If you expect to sell 80 units of the product you can produce using any of the 3 processes, what is the best total cost of producing the 80 units using your best of the 3 processes?

Answer 1

Answer:

Process A: $1400

Explanation:

Giving the following information:

Process A: 1000 + 5*80= 1400

Process B: 500 + 15*80= 1700

Process C: 1500 + 3*80= 1740

The process with fewer costs in process A. We will recommend to use process A. If the production increases, there will be a point where the process C will be cheaper (because it has lower variable costs).