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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
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B
800
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C
320
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D
240
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Solution

## The correct option is A 480Total cost = setup cost + variable cost/unit × no of units (TC)A=80+2.4(Q)(TC)B=800+0.9(Q)At BEP:–––––––––––(TC)A=(TC)B80+2.4(Q)=800+0.9QQ=7201.5=480 units Below 480 units, Machine A is better to use and above 480 units. Machine B is better.

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