Chapter 7 Problem 7.10

Gardens, Inc., prewashes, shreds, and distributes a variety of salad mixes in 2-pound bags. Doug Voss, Operations VP, is considering a new Hi-Speed shredder to replace the old machine, referred to in the shop as "Clunker." Hi-Speed will have a fixed cost of $85,000 per month and a variable cost of $1.25 per bag. Clunker has a fixed cost of only $44,000 per month, but a variable cost of $1.75. Selling price is $2.50 per bag. (Show your work)

a) What is the crossover point in units (point of indifference) for the processes?

b) What is the monthly cost if the company stays with Clunker and sells 60,000 bags per month?

c) What is the monthly cost if the company changes to the Hi-Speed shredder and sells 60,000 bags per month?

d) What is the monthly profit if the company stays with Clunker and sells 60,000 bags per month?

	Clunker	Hi-Speed
Fixed cost per month
Variable cost