Managing Operations Across the Supply Chain 1st Edition by Morgan Swink,Steven Melnyk,Bixby Cooper, Janet Hartley

Exercise 25

The Jazzy Java Company is considering upgrading its espresso machine to reduce the time to make each cup of coffee.The current machine has fixed costs of $3,000 per year and variable costs of $.75 per cup of coffee.With the new machine, fixed costs increase to $7,000 per year and variable costs are $.40 per cup of coffee.On average, the price of coffee is $3.00 per cup.
a.What is the break-even point of the current process?
b.?What is the net income with the current process if 8,000 cups of coffee are sold per year?
c.?What is the indifference point between the two processes?
d.?If the forecast is for 12,500 cups of coffee to be sold each year, which process should be used? Why?