Consider the following production data for Alternatives A and B in a firm that uses a 10% interest rate. Annual fixed cost per unit Alt A - $ 2 million Alt B - $ 3.5 million Annual variable cost per unit Alt A - $ 850 Alt B - $250 If the company is going to produce 4000 units annually, which alternative should be chosen? a. Alt. A b.Neither alternative should be chosen because the negative cash flows are greater than the positive cash flows for both alternatives. c. This problem cannot be solved because there is not enough data given. d. Alt. B

Question

04-06-2020
Business

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Consider the following production data for Alternatives A and B in a firm that uses a 10% interest rate. Annual fixed cost per unit Alt A - $ 2 million Alt B - $ 3.5 million Annual variable cost per unit Alt A - $ 850 Alt B - $250 If the company is going to produce 4000 units annually, which alternative should be chosen? a. Alt. A b.Neither alternative should be chosen because the negative cash flows are greater than the positive cash flows for both alternatives. c. This problem cannot be solved because there is not enough data given. d. Alt. B

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akachimichael akachimichael · Answer 1 · 2020-06-05T04:21:44+02:00

ANSWER: This problem cannot be solved because there is not enough data given. Option C is the most correct option.

EXPLANATION: when setting up a business, we consider all alternative of production, and determine the one that has a lower cost and still gives the best output, that is optimization.

For the question: it cannot be solved because of the negative sign in the cost, which needs to be explained further in the question. This cost cannot be entered into book keeping unless more explanation is given to the negative sign, as cost is not revenue. It is the money spent already and should have a positive sign.