Company B would like to buy a new machine. The old machine has an operating cost of 30,000 annually but it takes $20 per unit to produce. The new machine to do the same task will minimize the labor to be $5 per unit, but the annual operating cost will be $90,000 (this is taking into account the cost of purchase). How many units will it take to justify buying the new machine?

Is this solution for the problem correct ?

90,000/(20 - 5) = $ 6000

You're kind of sort of on the right track, but you'll need some adjustments to wrap it up.

• You've got the denominator correct (the new machine would cut the variable cost by 15 per unit), but for the numerator, remember that the new fixed cost would increase by?? Over its current level.

• The answer is in units, not dollars.

• To be precise, note in your answer that it's in terms of units per year.