Ski Boards, Inc., wants to enter the market quickly with a new finish on its ski boards. It has three choices: (a) Refurbish the old equipment at a cost of $800, (b) make major modifications at a cost of $1,100, or (c) purchase new equipment at a net cost of $1,800. If the firm chooses to refurbish the equipment, materials and labor will be $1.10 per board. If it chooses to make modifications, materials and labor will be $0.70 per board. If it buys new equipment, variable costs are estimated to be $0.40 per board. Which alternative should Ski Boards, Inc., should choose if it thinks it can sell 700 boards?

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Business

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15 January, 16:46

Ski Boards, Inc., wants to enter the market quickly with a new finish on its ski boards. It has three choices: (a) Refurbish the old equipment at a cost of $800, (b) make major modifications at a cost of $1,100, or (c) purchase new equipment at a net cost of $1,800. If the firm chooses to refurbish the equipment, materials and labor will be $1.10 per board. If it chooses to make modifications, materials and labor will be $0.70 per board. If it buys new equipment, variable costs are estimated to be $0.40 per board. Which alternative should Ski Boards, Inc., should choose if it thinks it can sell 700 boards?

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Answers (1)

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Lara Cole · Answer 1

Alternative A = $1570

Explanation:

Giving the following information:

It has three choices:

(a) Refurbish the old equipment for $800.

Materials and labor = $1.10 per board.

(b) make major modifications for $1,100

Materials and labor = $0.70.

(c) purchase new equipment at a net cost of $1,800.

Variable costs = $0.40.

Q = 700

Alternative A = 800+1.10*700 = $1570

Alternative B = 1100+0.70*700 = $1590

Alternative C = 1800+0.40*700 = $2080

The cheapest alternative is Alternative A. To make a full analysis you need the selling price, which we don't have.