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In: Operations Management

Auto Shoppe is considering the purchase of a new engine computer code reader for $30,000. Auto...

Auto Shoppe is considering the purchase of a new engine computer code reader for $30,000. Auto Shoppe can charge $50 for the service of reading the codes from a single car engine, while the actual cost of the reading would only be $10 per car engine. Suppose that the manager of Auto Shoppe is concerned about this purchase, and has stated that if Auto Shoppe were to buy the new engine computer code reader, “..the machine needs to pay for itself by the time we use it to read the codes of 200 car engines.” The manager says this is because, “…those sorts of engine computer code readers go out of date very quickly, so if we don’t get our money back soon, we will probably just wind up replacing the machine before it ever breaks even.” What would Auto Shoppe need to charge for the service of reading each car engine, to just break-even when it reads the codes from 200 car engines?

a.

$10
b.

$50
c.

$160
d.

$210
e.

$250

Solutions

Expert Solution

Ans: option c=$ 160.00

Fixed cost FC,(a new engine computer code reader)=$ 30,000.00

Variable cost VC,(actual cost of reading one engine)= $ 10

Selling price (SP=Revenue)=X

Desired Break even Unit=200

Formula:

Breakeven point=FC/SP-VC

As desired Breakeven is when it reads the codes from 200 car engines:

200=30,000/(x-10)

200 x (x-10)=30,000

200x -2000=30000

X=30000+2000/200

=32000/200

Ans option c=$ 160.00

keosha answered 2 years ago
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