Based on the given costs, what is the minimum number of acres to justify buying the grain combine?

Based on the given costs, what is the minimum number of acres to justify buying the grain combine?

• A. 800
• B. 600
• C. 1000
• D. 1200

Answer: (A)

The decision hinges on a break-even analysis: buying the grain combine is justified only if the annual cost of owning it is covered by the annual savings (or avoided costs) from using it instead of hiring or renting. To find the minimum acres, you divide the total annual ownership costs by the annual savings per acre you gain from owning. That quotient gives the break-even number of acres—acres at which the investment pays for itself. Any fewer acres, and the costs exceed the savings; any more, and you exceed the threshold but aren’t yet required to use more than the minimum to justify the purchase. In this problem, the data are such that the break-even point is reached at the first option shown, so that option represents the smallest acreage that justifies buying the grain combine.

The decision hinges on a break-even analysis: buying the grain combine is justified only if the annual cost of owning it is covered by the annual savings (or avoided costs) from using it instead of hiring or renting. To find the minimum acres, you divide the total annual ownership costs by the annual savings per acre you gain from owning. That quotient gives the break-even number of acres—acres at which the investment pays for itself. Any fewer acres, and the costs exceed the savings; any more, and you exceed the threshold but aren’t yet required to use more than the minimum to justify the purchase. In this problem, the data are such that the break-even point is reached at the first option shown, so that option represents the smallest acreage that justifies buying the grain combine.