Herb Phillipson\'s wants to enter the market quickly this year with a focus on k
ID: 354225 • Letter: H
Question
Herb Phillipson's wants to enter the market quickly this year with a focus on kayaks. Competition is heating up as the weather gets warmer and they have three options: 1) Refurbish old kayaks at a cost of $800 2) Make major modifications to existing stock at a cost of $1,100, or 3) Purchase new kayaks at a net cost of $1,800. If "Herb" chooses to refurbish the equipment, materials and labor will be $1.10 per kayak. If he chooses to make modifications, materials and labor will be $0.70 per kayak. If he buys new equipment, variable costs are estimated to be $0.40 per kayak. Which alternative (Plan A, B, or C) should "Herb choose if he thinks he can sell more than 3,000 kayaks? Path: p Words:0Explanation / Answer
Since the option to be chosen for quantity > 3000 , we may choose 5000 as quantity which is to be used for comparing costs under various options .
Total cost of refurbishing old kayaks = $800 + $1.1 / kayak x 5000 Kayaks = $800 + $5500 = $6300
Total cost of major modifications to existing stock = $1100 + $0.70 / kayak x 5000 Kayaks = $1100 + $3500 = $4600
Total cost of purchase new Kayaks = $1800 + $0.40/ kayak x 5000 kayaks = $1800 + $2000 = $3800
Based on above calculations, it s obvious that the least cost option is purchasing new Kayaks
Therefore , Herb should choose third option i.e. PURCHASE NEW KAYAKS
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