Question

Include graph interpretation below the graph. Make sure it is clear, complete, and easy to find. A manager is trying to determine which of three production processes to implement to produce a component for a new product line. Process A would entail a variable cost of $17 per unit and an annual fixed cost of $150,000. Process B would entail a variable cost of $11 per unit and an annual fixed cost of $250,000. Process C would entail a variable cost of $20 per unit and an annual fixed cost of $180,000. a. Develop three separate models in your spreadsheet to calculate Total cost for each process. The models must be flexible and able to calculate Total cost for any Quantity produced. b. Create a Cost-Volume graph that shows total cost lines for all three options. (Volume should range from 0 to 30,000) c. Write an interpretation of your graph

Answer 1

					Volume
	Variable cost	Fixed cost	Total Cost for X quanities	Cost	0	30000
A	17	150000	=17*X+150000	A	150000	660000
B	11	250000	=11*X+250000	B	250000	580000
C	20	180000	=20*X+180000	C	180000	780000

C) For process "B" though initial fixed cost is high, due to lower variable cost per unit, once volume exceeds break even scale, the profit will be more as total cost will be less.

For process"A", comparing to process"B" the fixed cost is less but variable cost per unit is more so till certain volume total cost of process A will be less than process B but once it exceed that volume, total cost of process A will be more than process B.

=17X+150000=11X+250000

=17X-11X=250000-150000

=6X=100000 so X=100000/6=16666.67

So till 16666.67 unit total cost of B will be higher than process A, after 16666.67 units total cost of process A will be higher than process B

For Process "C" till 7777.78 unit total cost of process B will be more than process C and after that total cost of process C will be more than process B

As both variable and fixed cost of process C is more than Process A so total cost of process C will be always more than process A irespective of volume.