Question

the production department wants to decide on one of the alternatives to minimize the cost. the alternative below    1. continue the production with your existing machine with a 2,00 $ cost per unit.   2. upgrade your machine with 800$ investment and reduce your unit cost to 2.20$per unit.    3. buy a high technology new machine for 1200$and have a lower units cost 1.50$ per unit.    your are expected to give a report on:       a. find the feasible domain in terms of the level of production for each alternative.      b. show your solution on a graph

Answer 1

For Alternative 1-

Variable Cost = $2

Thus Equation is Y= 2*X where X is the number of units produced

For Alternative 2-

Fixed Cost = $800

Variable Cost = $2.2

Thus Equation is Y= 2.2*X + 800 where X is the number of units produced

For Alternative 3-

Fixed Cost = $1200

Variable Cost = $1.5

Thus Equation is Y= 1.5*X + 1200 where X is the number of units produced

Using various values X we can plat these equation on graph.

To find the intercept of Alternative 1 & 3, we equate the.

2X = 1.5X + 1200

X = 1200/0.5 = 2400

From the plot we can see that initially Alternative 1 is beneficial but after quantity of 2400, Alternative 3 becomes beneficial. Alternative 2 is never preferable in this case due to high variable cost associated with it.

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