Jerry's Landscaping wants to increase capacity by adding a new tree cutting machine. The firm is considering proposals from Supplier A and Supplier B. The fixed costs for machine A are $250,000 and for machine B, $275,000. The variable cost for A is $75.00 per hour and for B, $60.00 per hour of operation. The revenue generated by the trees cut on these machines is $800 per tree. If the estimated output is 500 trees, which machine should be purchased?
A) machine A
B) machine B
C) either machine A or machine B
D) neither machine A nor machine B

Question

Quizplus · Accepted Answer

Machine A has a lower total cost at the estimated output of 500 trees. Total cost for A is $250,000 + ($75 * 500) = $287,500. Total cost for B is $275,000 + ($60 * 500) = $305,000. Revenue is $800 * 500 = $400,000 for both. Machine A yields a higher profit.

Jerry's Landscaping Wants to Increase Capacity by Adding a New