3. Union Water Purification Company (UWPC) is evaluating two possible designs for a new production facility to replace their present obsolete facility. The total cost functions for the two facilities are: TC1 = 550,000 + 600Q TC2 = 300,000 + 825Q Both plants would produce an identical desalination device that sells for $2,600 per unit. UWPC foresees no change in demand and intends to estimate sales from an average of the last seven years: Year Sales ($000) 1,100 1,075 1,200 1,250 1,150 1,100 1,125 Calculate the operating leverage for both plant designs. Find the level of production at which neither plant design has an advantage. Considering the sales information given, which plant design has a greater probability of cost savings?

3. Union Water Purification Company (UWPC) is evaluating two possible designs for a new production facility to replace their present obsolete facility. The total cost functions for the two facilities are: TC1 = 550,000 + 600Q TC2 = 300,000 + 825Q Both plants would produce an identical desalination device that sells for $2,600 per unit. UWPC foresees no change in demand and intends to estimate sales from an average of the last seven years: Year Sales ($000) 1,100 1,075 1,200 1,250 1,150 1,100 1,125 Calculate the operating leverage for both plant designs. Find the level of production at which neither plant design has an advantage. Considering the sales information given, which plant design has a greater probability of cost savings?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 7E

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