Question 3 - 6

A local company is considering three options in meeting demand. Option 1 requires no fixed cost and purchases the product from a supplier for $1. The other options consist of producing the product in-house at a reduced variable cost. Option 2 has an annual fixed cost of $250 but has a reduced variable cost of $0.60 for each product. Option 3 has a higher annual fixed cost of $640 but the variable cost drops to $0.20 for each product.

Question 3.

What is the break-even demand between options 2 and 3?

(A) 625 (B) 775 (C) 895 (D) 975 (E) none of the above

Question 4.

For a demand of 700, what is the cost of option 3?

(A) 780 (B) 700 (C) 670 (D) 600 (E) none of the above

Question 5. For a demand of 700, which option has the lowest cost?

(A) Option 1 (B) Option 2 (C) Option 3 (D) all of the above (E) none of the above

Question 6. How many statements are true?

(A) 0 (B) 1 (C) 2 (D) 3 (E) 4

Statement 1. Option 1 has the lowest cost for a demand of 400

Statement 2. Option 2 has the lowest cost for a demand of 600

Statement 3. Option 2 has the lowest cost for a demand of 800

Statement 4. Option 3 has the lowest cost for a demand of 1000 . . .