Question

John from One Source Credit is trying to decide how many machines to buy. The processing time is 7.5 minutes per customer. One machine will have total fixed costs of $5,300 per day, two machines will have total fixed costs of $9,800 per day. Variable costs are $40 per customer, revenue is $80 per customer.

1. Determine the break-even point for one machine. a. 89 Customers per Day b. 133 Customers per Day c. 128 Customers per Day

2. Determine the break-even point for two machines. a. 223 Customers per Day b. 89 Customers per Day c. 245 Customers per day

3. If estimated demand is 260 customers per day and he wants a capacity cushion of 10%, how many machines would John need? Assume 12 hours per day operating time. a. One Machine b. Two Machines c. Three Machines

4. Lucy is analyzing her cookie production line. She knows that her Maximum Capacity is 140,000 cookies per day, and her Utilization Rate is 71%.. What is the Average Output of the production line? a. 197,183 b. 94,900 c. 99,400

5. If she wants to increase her effective capacity, she should: a. Have her employees take longer coffee breaks. b. Purchase more specialized equipment if there is cost justification to do so. c. Lobby for increased government regulation

Answer 1

Ans:

1. Break even point for one machine =

For one machine, total fixed costs= $5300

per customer variable costs= $40

per customer revenue costs= $80

per customer contribution= $80-$40

=$40

Break even costs= $5300/ $40

= $132.50 = $133

2. For 2 machine , total fixed costs= $9,800

Revenue =$80

Variable costs= $40

Customer contribution= $40

Break even costs= $9800/40

= $245 per customer per day

Correct option is C

3. Daily capacity of 1 machine = 12*60/7.5 = 96 customers ( processing time is in minutes therefore it has to be in hours therefore divide it from 60)

Considering capacity cushion, the number of customers = 260*1.1 = 286.

Number of machines needed = 286/96 = 2.97 or 3 machines

Correct option is C

4. Average output of Machines= $140,000* 71/100

=99,400

Correct option is C

5. If she wants to increase her effective capacity, she should: Purchase more specialized equipment if there is cost justification to do so