Three processes have the following costs: Process A has a fixed cost of $2,000 and variable cost of $3.00/unit. Process B fixed cost is $4,000 and variable cost is $2.60/unit. Process C fixed cost is $8,000 and variable cost is $2.40/unit. If the projected total demand is for 6,000 units, which process should be used?
A) Process A
B) Process B
C) Process C

Question

Quizplus · Accepted Answer

To determine which process to use, we need to calculate the total cost of each process for producing 6,000 units.

For process A: Total cost = fixed cost + (variable cost per unit x number of units)
= $2,000 + ($3.00 x 6,000) = $20,000

For process B: Total cost = fixed cost + (variable cost per unit x number of units)
= $4,000 + ($2.60 x 6,000) = $20,400

For process C: Total cost = fixed cost + (variable cost per unit x number of units)
= $8,000 + ($2.40 x 6,000) = $22,400

Based on these calculations, process B has the lowest total cost for producing 6,000 units, making it the best choice.

Three Processes Have the Following Costs: Process a Has a Fixed