Calculate fixed and variable cost data for evaluating alternative approaches using the following data:
________________________Alternative 1___________Alternative 2
Annual fixed costs.................$155,000.......................$315,000
Variable costs per order..................$ 9..............................$ 7
Expected number of orders.........45,000..........................45,000
Scenario: American Sports has asked you to evaluate 2 alternative cost approaches for its new Web site. It would like you to calculate fixed and variable costs at different numbers of orders. The background data can be seen above.
Use the results to answer the following questions.
1. At what number of orders are the total costs for the two approaches the same? What does the mean?
2. Which alternative should be selected if the expected number of orders is less than the break-even level of orders? If the expected number of orders is greater than the break-even level of orders?
3. What conclusion regarding cost predications can be drawn from your analysis.