Chapter 01
Chapter 01
Chapter 01
INTRODUCTION
SOLUTION TO SOLVED PROBLEMS
If Power Notebooks manufactures the screens, the fixed cost is $100,000 and the unit cost is
$75. These data are entered into D2:D3.
The number of LCD screens needed (Q) is unknown. Cell C6 will be used for this quantity.
In general, Total Cost = Fixed Cost + (Unit Cost)(LCD Screens Needed). This formula is
entered into B4 and D4.
Trial and error with the spreadsheet shows that purchasing is cheaper if Q < 4000,
manufacturing is cheaper if Q > 4000, and the costs are identical when Q = 4000.
A B C D
4 Total Cost =PurchaseFixedCost+PurchaseUnitCost*Q =ManufactureFixedCost+ManufactureUnitCost*Q
1
b. Use a graphical procedure to determine the break-even point for Q (i.e., the quantity at
which both options yield the same cost).
To determine the ranges of Q for which each source is cheapest, graph the total cost versus
Q, as shown below. The total cost lines cross at Q = 4,000. This is the break-even point for
Q.
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