Healthy Snacks Inc. buys desserts from a caterer at $16.00 per unit and sells th

Question

Healthy Snacks Inc. buys desserts from a caterer at $16.00 per unit and sells them at coffee shops. They have been thinking about buying an oven so they can make the desserts themselves. They are deciding between an automatic a a semi automatic oven. The semi automatic oven will generate fixed costs for $125,000.00 a year and variable costs per unit (desserts) of $6.00. The automatic oven would generate fixed costs for $200,000.00 yearly and variable costs per unit of $4.5 1. What would be the minimum of units produced by each oven to equal what they now spend with the caterer? 2. What would be the most profitable alternative (of the two ovens) if they were to produce 90,000 units? 3. At what volume would it make no difference which oven to use?

Explanation / Answer

semi automatic oven: fixed costs for $125,000.00 a year and variable costs per unit $6.00.

automatic oven: fixed costs for $200,000.00 yearly and variable costs per unit of $4.5

1) for semi auto matic => 16*x=$125,000 + 6*x => X= 12500 units

for automatic => 16*X=$200,000 +4.5*X=> X= 17392 units

2) automatic one because variable cost will be less as number of units is too large > 17392

3)$125,000 + 6*x=$200,000 +4.5*X => X= 50000 units

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