Nagle Electric, Inc., of Lincoln, Nebraska, must replace a robotic Mig welder an

Question

Nagle Electric, Inc., of Lincoln, Nebraska, must replace a robotic Mig welder and is evaluating two alternatives. Machine A has a fixed cost for the first year of $75,000 and a variable cost of $16, with a capacity of 18,000 units per year. Machine B is slower, with a speed of one-half of A's, but the fixed cost is only $60,000. The variable cost will be higher, at $20 per unit. Each unit is expected to sell for $28. a) What is the crossover point (point of indifference) in units for the two machines? b) What is the range of units for which machine A is preferable? c) What is the range of units for which machine B is preferable?

Explanation / Answer

a) cross over point

16*X+75000=20*X+60000

=4x=15000

so X=3750 units

b)Machine A is preferable if order quantity is more than 3751 units to 18000 units. As veriable cost / unit is less, once volume crosses point of indifference (3750 units) machine A is preferable.

c) Machine B is preferable for 0units to 3749units

Variable cost Fixed cost Volume A 16 75000 18000 B 20 60000 9000

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