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Cost Alternative for Manufacturing Equipment

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Analyze the following cost alternatives:

Scenario - Other issue was facing your company. The level of sophistication of manufacturing equipment varies tremendously across Europe. Dave and Buster leadership has narrowed the decison to two options. The first is a higher technology option in one location, and the other is a lower technology option in several locations.

Assignment - Use the total cost equation to determine costs for both options. Consider the following questions:
- Which is the lead cost alternative in Years, 1, 5, and 10?

- How much would the variable cost per unit have to be in Year 5 for the automated alternative to justify the additional annual fixed cost of the automated alternative over the manual alternative?

Annual fixed cost \$1,220,000 \$430,000
Variable cost/product 13.21 16.09
Estimated annual production
(In number of products): Year 1 150,000 150,000
Year 5 190,000 190,000
Year 10 350,000 350,000

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Question:

Scenario - Other issue was facing your company. The level of sophistication of manufacturing equipment varies tremendously across Europe. Dave and Buster leadership has narrowed the decision to two options. The first is a higher technology option in one location, and the other is a lower technology option in several locations.

Assignment - Use the total cost equation to determine costs for both options. Consider the following questions:
- Which is the lead cost alternative in Years, 1, 5, and 10?
- How much would the variable cost per unit have to be in Year 5 for the automated alternative to justify the additional annual fixed cost of the automated alternative over the manual alternative?

Annual fixed cost \$1,220,000 \$430,000
Variable cost/product 13.21 ...

Solution Summary

The cost alternatives for manufacturing equipment is examined.

\$2.19
Similar Posting

Selecting the suitable alternative

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 it 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?

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