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Calculating the maximum fixed cost in the given case

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Zipco is in serious negotiations to purchase a chunking machine that will enable them to perform their own chunking at $1.25 per unit. They currently have their chunking outsourced at a cost of $1.75 per unit and a fixed cost of $48,000. Their marketing team feels that they can sustain an annual volume of 15,000 units. What is the maximum fixed cost that Zipco should be willing to bear in order to perform their own chunking?

Select one:
a. $55,500
b. $57,500
c. $50,000
d. $52,500

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Solution Summary

The solution depicts the steps to estimate the maximum fixed cost that company can bear to perform its own chunking.

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Expected Volume=Q=15000

Let the fixed cost be F in case of own chunking
Variable cost per unit in case of own ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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