Question

A manufacturer is evaluating options regarding his production equipment. He is trying to decide whether he should refurbish his old equipment for $70,000, make major modifications to the production line for $135,000, or purchase new equipment for $230,000. The product sells for $10, but the variable costs to make the product are expected to vary widely, depending on the decision that is to be made regarding the equipment. If the manufacturer refurbishes, the variable costs will be $7.20 per unit. If he modifies or purchases new equipment, the variable costs are expected to be $5.25 and $4.75, respectively. a. Which alternative should the manufacturer choose if the demand is expected to be between 30,000 and 40,000 units? b. What will be the manufacturer's profit if the demand is 38,000 units?

          A manufacturer is evaluating options regarding his production equipment. He is trying to decide whether he should refurbish his old equipment for $70,000, make major modifications to the production line for $135,000, or purchase new equipment for $230,000. The product sells for $10, but the variable costs to make the product are expected to vary widely, depending on the decision that is to be made regarding the equipment. If the manufacturer refurbishes, the variable costs will be $7.20 per unit. If he modifies or purchases new equipment, the variable costs are expected to be $5.25 and $4.75, respectively.

a. Which alternative should the manufacturer choose if the demand is expected to be between 30,000 and 40,000 units?
b. What will be the manufacturer's profit if the demand is 38,000 units?

Show more…

Added by Enrique W.

Calculus: Early Transcendentals

James Stewart 8th Edition

Instant Answer

Solved by Expert Qbs Educator

02/02/2022

Step 1

For refurbishing: Total cost = $70,000 + ($7.20 * number of units) For modifying: Total cost = $135,000 + ($5.25 * number of units) For purchasing new: Total cost = $230,000 + ($4.75 * number of units) If the demand is expected to be between 30,000 and 40,000 Show more…

Show all steps

lock

Thanks for your feedback!

A manufacturer is evaluating options regarding his production equipment. He is trying to decide whether he should refurbish his old equipment for $70,000, make major modifications to the production line for $135,000, or purchase new equipment for $230,000. The product sells for $10, but the variable costs to make the product are expected to vary widely, depending on the decision that is to be made regarding the equipment. If the manufacturer refurbishes, the variable costs will be $7.20 per unit. If he modifies or purchases new equipment, the variable costs are expected to be $5.25 and $4.75, respectively. a. Which alternative should the manufacturer choose if the demand is expected to be between 30,000 and 40,000 units? b. What will be the manufacturer's profit if the demand is 38,000 units?

Play audio

Feedback

Powered by NumerAI

Qbs Educator and 77 other subject Calculus 3 educators are ready to help you.

Ask a new question

Labs

Want to see this concept in action?

NEW

Explore this concept interactively to see how it behaves as you change inputs.

View Labs

Key Concepts

Recommended Videos

Recommended Textbooks

Transcript

00:01 Okay, in this question, a manufacturer is evaluating options regarding his production equipment.

00:07 He's trying to decide whether he should refurbish his old equipment for 70 ,000.

00:14 Okay, first option is, i will take this down.

00:20 First option is re -burnish.

00:22 So let's just say his plan a is to refurbish, okay? and fixed cost for this particular, okay, fixed cost i'll represent it as fc, is 70 ,000 for this plan a.

00:42 And he also has a plan b, which is nothing but modification in production line.

00:53 Modification, okay.

00:57 So here his fixed cost is this much.

01:06 Another way is to purchase new equipment which has a fixed cost of around 2 .30 ,000.

01:20 So now they gave that selling price.

01:27 I'll write sp, okay? sp per unit is equal to $10.

01:38 They haven't mentioned about any dollars but then let's assume that everything is in dollars.

01:43 Okay now they gave us the variable cost also for re -perish it is 7 .2 per unit per unit this is 5 point for the modified or purchase new equipment okay for the modified it would be 5 .25 per unit and for the new purchase it were the variable cost would be 4 .5.

02:21 0 .75 per unit.

02:23 Okay, this is what they give.

02:25 So basically we have to find out which alternative should the manufacturer choose, okay, choose between 30 ,000 to 40 ,000, okay? okay, we have to find out profit at 38 ,000.

02:48 Okay, so first let me draw the graph.

02:51 So basically, i, i, you know, want to go down.

02:59 Okay.

02:59 So basically let's just say that this is 70 ,000.

03:12 Here we would have 135 ,000 and here we would have 23 ,000...

Ace is your personal tutor. It breaks down any question with clear steps so you can learn.

Start Using Ace

Continue solving this problem

Create a free account to:

View full step-by-step solution
Ask follow-up questions with Ace AI
Save progress and study later