The Widget Manufacturing Company must replace a widget machine, and is evaluating the capabilities of two systems. A requirement of management is that the machine chosen must be paid for during the first year of operation. The first machine under consideration, Machine A, would cost $65 000, and has the capacity to make up to 10 000 widgets per year, with a variable cost of $22 per widget. The second machine, Machine B, can produce widgets in almost half the time, would cost $72 000, but the variable cost is only $17 per widget. Widgets sell for $32.
(Excel is not required for this question: Just type)
1) a. Find the break-even point in terms of Widgets for each machine.
b. Find the break-even point in terms of dollars for each machine.
c. If the Widget Company is anticipating a demand of 5500 units in the next year, which machine
should be chosen?
d. If the demand is anticipated at 7500 units, would a different system be chosen?
2) Suppose an additional Machine A is installed to make Junior Widgets. The selling price for these devices is $12 per unit, with a variable price of $8. Calculate
a. the BEP
b. the BEP$
c. the profit (if any) at 24 000 units
3) At what volume would the Widget Manufacturing Company in the above question be indifferent to a choice between the two systems? (Hint: The costs will be the same.)