Question

A machine shop manager has two machines that can do the same operations. the setup cost and the variable costs are given below :

Mchine	Setup cost (Rs)	variable Cost/unit (Rs)
A B	80 800	2.4 0.9

A decision has to be taken to select the machine A or B to minimize the total cost of production when an order comes. At what volume (units) of production do machines A or B break even is

• A. 480
• B. 800
• C. 320
• D. 240

Answer 1

The correct option is A 480

Total cost = setup cost + variable cost/unit $\times$ no of units
$(TC{)}_A=80+2.4(Q\left)\right(TC{)}_B=800+0.9\left(Q\right)\underset{–}{AtBEP:}(TC{)}_A=(TC{)}_{B}80+2.4\left(Q\right)=800+0.9QQ=\frac{720}{1.5}=480units$
Below 480 units, Machine A is better to use and above 480 units.
Machine B is better.