The Electric Sheep Division of Block C Enterprises is considering the purchase o

Question

The Electric Sheep Division of Block C Enterprises is considering the purchase of a new, high quality coating machine for processing end effectors. Two machines are under discussion. Machine A has a purchase price of $400000 and a unit coating cost of $7.50. Machine B has a purchase price of $800000 and a unit coating cost of $1.20. The current value added for the items to be produced on these machines is $10. Both machines have an expected life of 5 years with no salvage value. Determine the annual volume for the breakeven point between the two machines (i.e., where the two machines have the same annual cost)?

Explanation / Answer

Total cost for Machine A & B over 5 years = Initial cost + unit cost

let breakeven volume be x

for machine A:

400000 + 7.5*x

for machine B:

800000 + 1.2*x

since the total cost is same

400000 + 7.5x = 800000 + 1.2x

7.5x -1.2x = 800000 - 400000

6.3x = 400000

x = 63492.06 = 63492 units for 5 years

annual volume = 63492/5 = 5291.0053 = 5291 units annually

annual volume for break even oint between two machines = 5291 units

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