A Shop Wants to Increase Capacity by Adding a New

Multiple Choice

A shop wants to increase capacity by adding a new machine. The firm is considering proposals from vendor A and vendor B. The fixed costs for machine A are $90,000 and for machine B, $75,000. The variable cost for A is $15.00 per unit and for B, $18.00. The revenue generated by the units processed on these machines is $22 per unit. If the estimated output is 9,000 units, which machine should be purchased?

A) machine A
B) machine B
C) either machine A or machine B
D) no purchase because neither machine yields a profit at that volume
E) purchase both machines since they are both profitable