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6 October, 23:08

Ski Boards, Inc., wants to enter the market quickly with a new finish on its ski boards. It has three choices: (a) Refurbish the old equipment at a cost of $800, (b) make major modifications at a cost of $1,100, or (c) purchase new equipment at a net cost of $1,800. If the firm chooses to refurbish the equipment, materials and labor will be $1.10 per board. If it chooses to make modifications, materials and labor will be $0.70 per board. If it buys new equipment, variable costs are estimated to be $0.40 per board. Which alternative should Ski Boards, Inc., should choose if it thinks it can sell 700 boards?

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  1. 6 October, 23:21
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    Alternative A = $1570

    Explanation:

    Giving the following information:

    It has three choices:

    (a) Refurbish the old equipment for $800.

    Materials and labor = $1.10 per board.

    (b) make major modifications for $1,100

    Materials and labor = $0.70.

    (c) purchase new equipment at a net cost of $1,800.

    Variable costs = $0.40.

    Q = 700

    Alternative A = 800+1.10*700 = $1570

    Alternative B = 1100+0.70*700 = $1590

    Alternative C = 1800+0.40*700 = $2080

    The cheapest alternative is Alternative A. To make a full analysis you need the selling price, which we don't have.
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