Question

A manager must decide how many machines of a certain type to purchase. Each machine can process 100 customers per day. One machine will result in a fixed cost of $2,100 per day, while two machines will result in a fixed cost of $3,900 per day. Variable costs will be $17 per customer, and revenue will be $45 per customer.
a. Determine the break-even point for each range. (Round your answers to the next whole number.) One machine Two machines
b. If estimated demand is 90 to 120 customers per day, how many machines should be purchased?

Answer 1

Answer:

Instructions are below.

Explanation:

Giving the following information:

Each machine can process 100 customers per day. One machine will result in a fixed cost of $2,100 per day, while two machines will result in a fixed cost of $3,900 per day. Variable costs will be $17 per customer, and revenue will be $45 per customer.

To calculate the break-even point in units, we need to use the following formula:

Break-even point in units= fixed costs/ contribution margin per unit

1 machine:

Break-even point in units= 2,100/ (45 - 17)

Break-even point in units= 75 costumers

2 machines:

Break-even point in units= 3,900/ 28

Break-even point in units= 139 costumers

If the demand is from 90 to 120 costumers per day, the company should buy 1 machine. With this level of demand, the company will not cover the costs of two machines.