Question

You are hired as a consultant for Skater Boys Incorporated, a firm with over five years

Answer 1

a. The associated costs of each decision are as follows:

                               Refurbishment      Modifications    New Equipment

Variable cost                   $1.10                    $0.70                   $0.40

Expected unit sales      3,000                    3,000                   3,000

Total variable costs  $3,300                  $2,100                  $1,200

Total Fixed costs             800                     1,100                     1,800

Total costs                  $4,100                 $3,200                 $3,000

b. The Skater Boys Inc. should purchase new equipment instead of refurbishing or modifying its old equipment.  The total cost it incurs with the purchase of new equipment is much less than the other alternatives.

c. If expected demand is between 1,000 and 2,000 skates, Modifications of old equipment will be the best alternative.

It is not the same alternative chosen for part b.  The reason for the difference is that the total cost for part b favors the purchase of new equipment, whereas, the total cost for part c favors the modifications of the old equipment.

d. If the actual demand is 4,500 skates, the Skater Boys Inc should purchase new equipment because the total cost is $3,600, far less than the total costs of the other alternatives.

Data and Calculations:

                               Refurbishment      Modifications    New Equipment

Fixed Cost                     $800                   $1,100                 $1,800

Variable cost                  $1.10                   $0.70                   $0.40

Assumed unit sales     3,000                   3,000                   3,000

Total variable costs  $3,300                  $2,100                  $1,200

Total Fixed costs           800                     1,100                     1,800

Total costs                $4,100                 $3,200                 $3,000

                                   Refurbishment        Modifications      New Equipment

Expected demand      1,000     2,000      1,000    2,000       1,000     2,000

Total variable costs  $1,100   $2,200       $700   $1,400       $400      $800

Fixed costs                   800        800        1,100      1,100       1,800       1,800

Total costs               $1,900   $3,000    $1,800 $2,500    $2,200   $2,600

                                   Refurbishment      Modifications      New Equipment

Expected demand            4,500                   4,500                   4,500

Total variable costs        $4,950                  $3,150                  $1,800

Total Fixed costs                 800                     1,100                     1,800

Total costs                      $5,750                 $4,250                 $3,600

Learn more: brainly.com/question/20522586