A Fabrication Company Wants to Increase Capacity by Adding a New

question 89

Multiple Choice

A fabrication company wants to increase capacity by adding a new machine. The firm is considering proposals from vendor A and vendor B. The fixed costs for machine A are $90,000 and for machine B, $75,000. The variable cost for A is $15.00 per unit and for B, $18.00. The revenue generated by the units processed on these machines is $21 per unit. If the estimated output is 5000 units, which machine should be purchased?

• A) machine A
• B) machine B
• C) either machine A or machine B
• D) no purchase because neither machine yields a profit at that volume
• E) purchase both machines since they are both profitable

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