Fred's Fabrication, Inc. 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, $70,000. The variable cost for A is $9.00 per unit and for B, $14.00. The revenue generated by the units processed on these machines is $20 per unit. The crossover between machine A and machine B is
A) 4,000 units, with A more profitable at low volumes.
B) 4,000 dollars, with A more profitable at low volumes.
C) 4,000 units, with B more profitable at low volumes.
D) 4,000 dollars, with B more profitable at low volumes.
E) cannot be calculated from the information provided.

Question

Quizplus · Accepted Answer

To find the crossover point, we need to set the revenue from each machine equal to their respective total cost:

20Q = 90,000 + 9Q  for machine A
20Q = 70,000 + 14Q for machine B

Solving these equations, we get Q = 4,000 units.

Therefore, the crossover point is 4,000 units, and machine B is more profitable at low volumes, since its variable cost per unit is lower than that of machine A.