Three processes have the following costs: Process A has a fixed cost of $2,000 and variable cost of $3.00/unit. Process B's fixed cost is $4,000 and variable cost is $2.60/unit. Process C's 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?

Question

Business

Shyann Blair

30 May, 20:47

Three processes have the following costs: Process A has a fixed cost of $2,000 and variable cost of $3.00/unit. Process B's fixed cost is $4,000 and variable cost is $2.60/unit. Process C's 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?

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Answers (1)

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Bishop · Answer 1

Process B should be used.

Explanation:

Total Cost = Fixed Cost + Variable Cost

Total Cost = Fixed Cost + (Average Variable Cost) x (Quantity)

Process A : TC = 2000 + (3) x (6000) = 2000 + 18000

= $ 20000

Process B : TC = 4000 + (2.60) x (6000) = 4000 + 15600

= $ 19600

Process C : TC = 8000 + (2.40) x (6000) = 8000 + 14400

= $ 22400

Since Total Cost for producing 6000 units quantity demanded is least by Process B, Process B should be used.