Burritos cost $0.45 for the wrap, $0.10 for the rice, and $0.58 for the vegetabl

Question

Burritos cost $0.45 for the wrap, $0.10 for the rice, and $0.58 for the vegetables and toppings. Labor costs are approximately $10 per hour and the typical employee can assemble 20 burritos in 1 hour. A new automated burrito machine can be purchased for $4000 that can replace the assembly employee. Burritos sell for $7 each.

a) Identify the fixed and variable costs.

b) What are the total costs for the current manual assembly process?

c) How many burritos would need to be made to justify purchasing the new machine?

Explanation / Answer

a) The cost of wrap, rice , vegetables , toppings and the labour charge come under variable cost. Because they vary with the output. They will increase at a constant rate relative to labor and capital.

The cost of machinery is fixed. It is independent of output. These remain constant throughout the relevant range.

b) Assume working hours of labour as 12 hours

employee can assemble 20 burritos for 1 hour

For 12 hours = 12×20 = 240 burritos

Rate of one burrito = 7$

For 240 burritos = 7 * 240 = 1680$

Labour cost = $10 per hour

For 12 hours = 10 × 12 = 120$

The total cost = 1680 - 120 = 1560$

C) for purchasing new machine 4000$ is needed

1 burrito cost 7$

No of burritos need to be made for purchasing new machine = 4000/7 = 571.42 = 571 numbers

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