Question

Highgrove Industries must decide which process technology to adopt, given the information below. Cost Technology A Technology B Technology C Price per unit $3 $3 $3 Fixed costs per year $80,000 $120,000 $130,000 Variable costs per unit $2.20 $1.85 $1.65 Which one of the process technologies would you recommend they adopt if the expected demand is 100,000 units

Answer 1

Answer:

Technology C

Explanation:

Total Cost = Fixed Cost + Variable cost * (Number of Units)

Total Cost for Technology A = $80000 + $2.20*(100,000 units)

Total Cost for Technology A = $300,000

Total Cost for Technology B = $120,000 + $1.85*(100,000 units)

Total Cost for Technology B = $305,000

Total Cost for Technology C = $130,000 + $1.65*(100,000 units)

Total Cost for Technology C = $195,000

Conclusion: The minimum total cost for 100,000 Unit is for process technology C, Hence this technology would be recommended