Question

Jerry, the manager of a small printing company, needs to replace a worn out copy machine. He is considering two machines; each has a monthly lease cost and a cost per page that is copied: " Machine 1 has a $430 monthly lease with a 2.0 cent per page cost up to 230 pages, and then 1.0 cent per page after the 1st 230 pages. " Machine 2 has a $590 monthly lease with a 1.5 cent per page cost up to 230 pages, and then 0.5 cent per page after the 1st 230 pages. Jerry knows the break-even point is more than 230 pages for each machine. Determine the break-even point (per month) in terms of the number of copies for each machine if Jerry charges customers 5.0 cents per copy. Based on this, which machine do you recommend?

Answer 1

Break even point = Fixed Cost/ (Price - Variable Cost)

Since we already know that the breakeven is not in the first 230 pages, the cost of the first 230 pages is also considered as fixed cost.

Break even point for Mavhine 1 =( 430 +230*0.02 )/(0.05-0.01) = 10,865

Break even point for Machine 1 = 10,865 +230 = 11,095 Copies

Break even point for Machine 2 = (590 +230*0.015)/(0.05-0.005) = 13,188

Break even point for Machine 2 = 230 + 13,188 = 13,418 Copies

So, we recommed Machine 1 since break even is lower