Question 25 -Use the following to answer the questions below. A company must dec

Question

Question 25 -Use the following to answer the questions below. A company must decide on the type of equipment to buy in order to manufacture a new product line. The company can purchase an all-purpose machine, with fixed costs amounting to $20,000 per year, and it will cost $40 / unit to produce the new line on this machine. It can also buy a special-purpose machine, with fixed costs of $50,000 per year, and the per unit cost on this machine is $30. Refer to the instruction above. What does the company save for the year by selecting this low-cost option (for annual requirements of 5,000 units)?

Question 25 options:

$15,000

$5,000

$10,000

$20,000

Explanation / Answer

Option(d) - Total cost on all purpose machine for 5000 units = 20000+(5000*40)

=20000+200000

=220000

Total cost associated with special purpose machine for 5000 units = 50000+(5000*30)

= 50000+150000

= 200000

Savings = costs associated with all purpose machine - costs associated with special purpose machine

= 220000-200000 = 20000

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