Discuss the below:
Q: A manager has the option of purchasing one, two, or three machines. Fixed costs and potential volumes are as follows:
| Number of machines |
Total annual fixes costs |
Corresponding range of output |
| 1 |
$9,600 |
0 to 300 |
| 2 |
$15,000 |
301 to 600 |
| 3 |
$20,000 |
601 to 900 |
The variable cost if we operate only 1 machine is $10 per unit, but due to economies of scale it decreases to 9$ and 8$ if we operate together 2 and 3 machines, respectively. The price sold per item is $40.
Help the manager determine break-even point for each range. If projected annual demand is between 580 and 660 units, how many machines should the manager purchase?