Assignment:
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 Fixed Cost Corresponding Range of output
1 $9600 0 to 300
2 $15000 301 to 600
3 $20000 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?