A Firm Is About to Undertake the Manufacture of a Product

question 100

Essay

A firm is about to undertake the manufacture of a product, and is weighing the process configuration options. There are two intermittent processes under consideration, as well as a repetitive focus. The smaller intermittent process has fixed costs of $3,000 per month, and variable costs of $10 per unit. The larger intermittent process has fixed costs of $12,000 and variable costs of $2 per unit. A repetitive focus plant has fixed costs of $50,000 and variable costs of $1 per unit.
a. At what output does the large intermittent process become cheaper than the small one?
b. At what output does the repetitive process become cheaper than the larger intermittent process?

---

Definitions:

IFRS

A global set of accounting standards formulated by the International Accounting Standards Board (IASB), known as International Financial Reporting Standards.

Payroll Taxes

Charges levied on both employers and employees, typically determined based on a percentage of what employers pay to their workers as wages.

Federal Income

Income subject to federal income tax, which includes earnings from various sources such as wages, interest, dividends, and capital gains, among others.