12. A manager must decide how many machines of a certain type to purchase. Each
ID: 362972 • Letter: 1
Question
12. A manager must decide how many machines of a certain type to purchase. Each machine can pro- cess 100 customers per day. One machine will result in a fixed cost of $2,000 per day, while two machines will result in a fixed cost of $3,800 per day. Variable costs will be $20 per customer, and revenue will be $45 per customer.
a. Determine the break-even point for each range.
b. If estimated demand is 90 to 120 customers per day, how many machines should be purchased?
Chapter 5, Question 12
Operations Management, Stevenson W.J. 13th ed.
Explanation / Answer
a)
Break even point = Fixed cost / (Price - variable cost)
One machine:
Break even = 2000/(45-20) = 80
Two machines
Break even= 3800/(45-20) = 152
b)
One machine should be purchased because two machines break even point is 152
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