Forecasting

Machine A has a fixed cost of $40,000 per year and a variable cost of $60 per unit. Machine B has an unknown fixed cost, but with this process 200 units can be produced each month at a total variable cost of $2000.

If the total costs of the two machines break even at a production rate of 2000 units per year, what is the fixed cost of machine B?

The chief engineer of Domingo County is considering two methods for lining waterholding tanks. A bituminous coating can be applied at a cost of $8000. If the coating is touched up after 3 years at a cost of $1 000, its life can be extended another 3 years. As an altel11ative, a plastic lining may be installed with a useful life of 15 years.

If the discount rate is 4% per year, how much can be spent for the plastic Iining so that the two methods just break even? Solve (a) by hand and (b) by computer.

 

Solution:

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