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A manager has to decide how many machines to purchase for a new production facility. Once the machines are purchased, production will start. Estimated monthly
A manager has to decide how many machines to purchase for a new production facility. Once the machines are purchased, production will start. Estimated monthly fixed cost and production capacity are provided below for each alternative. The unit variable cost and the unit revenue of the product are estimated to be $20 and $50, respectively. Number of Monthly Fixed Monthly Total Machines to Cost Production Capacity Purchase (In units) $18,000 0-500 524.000 0-1,000 $30,000 0-1.500Butterfly Bags is a young brand that manufactures backpacks and messenger bags in Florida. Despite the company being only 5 years in the market, it has already become one of the competitive businesses with a growing profit. However, after COVID 19 the company's profit decreased dramatically compared to previous years. That is why the company decided to produce a unique product which will be demanding in a market and will bring higher profit. Butterfly Bag's design team made a new bag that includes a built-in power charge. These bags can be used to recharge the majority of smartphones and computers. The bags have become popular among people who are constantly on the move and travel a lot. The retail price of the new bag will be $229. The product is expected to be very popular. The company has identified the following options to manufacture the new bags: - Option A: Butterfly Bags outsources production of the new product to a third party at a cost of $180 per unit (including labor and materials). There is negligible fixed cost if the bag is produced by a third party. - Option B: Butterfly Bags makes the product in house, at $120 per unit (including labor and materials). The company has to acquire additional sewing machines at a cost of $60,000 to produce the new product at its existing facility. - Option C: Butterfly Bags refurbishes one of its storage facilities with entirely new technology. The company purchases numerically-controlled machines to manufacture the bags at $70 per unit (including labor and materials). This option has a fixed cost of $220,000. a) Determine the range of production volume which makes Option A the lowest-cost option. b) Determine the range of production volume which makes Option B the lowest-cost option. c) Determine the range of production volume which makes Option C the lowest-cost option
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