Respuesta :
Answer:
At 270, 000 copies, option 2 is preferred
At 240, 000 copies, option 2 is preferred.
the college will be indifferent when the volume is 340, 000
Explanation:
When deciding which option to choose, the college of business need to consider that the cost is divided into two: fixed and variable costs.
Fixed costs: Fixed costs are the costs that do no change regardless of the number of copies that will be made. In this instance, fixed costs are the Lease value for option 1 and the cost price of the machine for the second option.
Variable Costs: Variable costs are the costs that will vary depending n the number of copies that will be made. In this instance, variable costs will be the total cost of making copies (per sheet cost x number of copies made)
Option 1: to lease the machine
Fixed cost = $8, 400
Variable cost (@270, 000 copies) = $0.01 x 270, 000 = $2, 700
Total cost = $11, 100
Option 2: to purchase the machine
Fixed cost = $5, 000
Variable cost (@270, 000 copies) = $0.02 x 270, 000 = $5, 400
Total cost = $10, 400
Between option 1 and Option 2, at 270, 000 copies, option 2 is preferred as it has a lesser cost.
Option 1: to lease the machine
Fixed cost = $8, 400
Variable cost (@240, 000 copies) = $0.01 x 240, 000 = $2, 400
Total cost = $10, 800
Option 2: to purchase the machine
Fixed cost = $5, 000
Variable cost (@240, 000 copies) = $0.02 x 240, 000 = $4, 800
Total cost = $9, 800
Between option 1 and Option 2, at 270, 000 copies, option 2 is preferred as it has a lesser total cost.
Now we need to determine at which volume will the college be indifferent between the two option, i.e. when the costs that will be incurred for Option 1 are equal to the costs that will be incurred for Option 2
$8, 400 + 0.01x = $5, 000 + 0.02x
$8, 400 - $5, 000 = 0.02x – 0.01x
$3, 400 = 0.01x
$340, 000 = x
The college will be indifferent between the 2 options when the volume is 340, 000 copies.
Proof:
Option 1: $8, 400 + [0.01 x 340, 000] = $11, 800
Option 2: $5, 000 + [0.02 x 340, 000] = $11, 800
