Process A has a fixed cost of $160,000 per year and a variable cost of $50 per unit. For Process B, 10 units can be produced in 1 day at a cost of $200. If the company’s MARR is 10% per year, what will the annual fixed cost have to be for Process B in order for the two alternatives to have the same annual total cost at a production rate of 1000 units per year?
What will be an ideal response?
Set annual costs equal to each other and solve for FC, the fixed cost
160,000 + 50(1000) = FC + (200/10)(1000)
FC = $190,000
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