Problem:
Analyze the following cost alternatives:
Scenario - Other issue was facing your company. The level of sophistication of manufacturing equipment varies tremendously across Europe. Dave and Buster leadership has narrowed the decison to two options. The first is a higher technology option in one location, and the other is a lower technology option in several locations.
Assignment - Use the total cost equation to determine costs for both options. Consider the following questions:
- Which is the lead cost alternative in Years, 1, 5, and 10?
- How much would the variable cost per unit have to be in Year 5 for the automated alternative to justify the additional annual fixed cost of the automated alternative over the manual alternative?
Annual fixed cost $1,220,000 $430,000
Variable cost/product 13.21 16.09
Estimated annual production
(In number of products): Year 1 150,000 150,000
Year 5 190,000 190,000
Year 10 350,000 350,000