Question: A small manufacturer that produces outdoor furniture is considering increasing the automation on the production line that makes its most popular metal patio chairs. The current process has fixed costs of $150,000 per year and variable costs of $20 per chair. The more automated process that is being considered will increase fixed costs to $250,000 annually but variable costs will decrease to $10 per chair.
a. What sales volume is the indifference point between these two processes?
b. If the estimated annual sales volume for metal chairs is 18,000 chairs, should the owner invest in the new process? Why, or why not?