California Gardens, Inc., prewashes, shreds, and distributes a variety of salad mixes in 2-pound bags. Doug Voss, Operations VP, is considering a new Hi-Speed shredder to replace the old machine, referred to in the shop as “Clunker.” Hi-Speed will have a fixed cost of $85,000 per month and a variable cost of $1.25 per bag. Clunker has a fixed cost of only $44,000 per month, but a variable cost of $1.75. Selling price is $2.50 per bag.
a) What is the crossover point in units (point of indifference) for Eric Limon/ Shutter stock the processes?
b) What is the monthly profit or loss if the company changes to the Hi-Speed shredder and sells 60,000 bags per month?
c) What is the monthly profit or loss if the company stays with Clunker and sells 60,000 bags per month?
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