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Problem 13
Problem 13.018: Calculate fixed cost for one alternative in order to maintain a breakeven in total costs of two alternatives Process A has a fixed cost of $190,000 per year and a variable cost of $58 per unit. For Process B, 10 units can be produced in 1 day at a cost of $140. If the company's MARR is 10% per year what will the annual fixed cost have to be for Process B in order for the two alternatives to have the same annual total cost at a production rate of 2750 units per year? The annual fixed cost for process in order for the two alternatives to have the same annual total cost is determined to be $
Expert Solution
Ans
Fixed cost of Process A=$190,000
Variable cost of Process A=$58 per unit
Cost of 10 units in Process B=$140
Cost of 1 unit=$14
The total cost Process A-
Total Cost=Fixed cost+Variable cost
=190,000+58(2750)
=349,500
It is given that the Annual Fixed Cost for B in order for the two alternatives to have the same annual total cost.
The fixed Cost for Process B
Total cost =Fixed cost +Variable Cost
349,500=X+14(2750)
349,500=X+38,500
X=349,500-38,500
X=311,000
Therefore,the Annual Fixed Cost for process B in order for the two alternatives to have the same Annual Total Cost is determined to be $311,0006
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