Q2) A manager must decide how many machines of a certain type to purchase. Each

Question

Q2) A manager must decide how many machines of a certain type to purchase. Each machine can process 100 customers per hour. One machine will result in a fixed cost of $2,000 per hour while two machines will result in a fixed cost of $3,800 per hour. Variable costs will be $20 per customer and revenue will be $45 per customer. (a) Determine the break-even point for each scenario. (b) If estimated demand is 90 to 120 customers per hour, how many machines should be purchased? (c) Suppose, all demand need not be satisfied, find out the best option for all demand values. (d) Suppose, all demand must be satisfied, find out the best option for all demand values.

Explanation / Answer

a)One machine:
Breakeven point(no of customers)=Fixed costs/(revenue-variable costs)
=2000/(45-20)
=80
two machines:
=3800/(45-20)
=152
b)one machine is sufficent since it can process 100 customers per hour
c)If all demand needs not be satisfied then need to purchase 1 machines
d)If all demand needs be satisfied then need to purchase 2 machines

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