Assume there are two alternative options to make a machine part. The fixed cost for the process and

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Assume there are two alternative options to make a machine part. The fixed cost for the process and the variable cost to produce each machine part for two options are $100,000 (Option 1) and 150,000 (Option 2), and $10 (Option 1) and $8 (Option 2), respectively.

  1. a) What is the break-even quantity comparing two options?

  2. b) If this machine part has a total demand of 20,000 over its life cycle, which option is better?

  3. c) If the selling price for the finished machine part is $30 and the expected production volume

    is 4,000 per year, which option is better so it will take shorter time to break even?

 
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