Question: The Jazzy Java Company is considering upgrading its espresso machine to reduce the time to make each cup of coffee. The current machine has fixed costs of $3,000 per year and variable costs of $.75 per cup of coffee. With the new machine, fixed costs increase to $7,000 per year and variable costs are $.40 per cup of coffee.
a. What is the indifference point between the two processes?
b. If the forecast is for 12,500 cups of coffee to be sold each year, which process should be used? Why?