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Help Save&Exit; Submit 0 You skipped this question in the previous attempt Process X is estimated to have a fixed cost of $40,000 per year and a variable cost of $60 per unit in year 1, decreasing by $5 per unit per year thereafter. Process Y will have a fixed cost of $75,000 per year and a variable cost of $10 per unit in year 1, increasing by S per unit peryear thereafter Atan interest rate of 12% per year, how many units must be produced in year 6 for the two processes to break even? The number of units that must be produced is determined to be 10 points eBook Hint Pyint References K Pre 1 of 13 Next> ^ 30.122017

Explanation / Answer

The breakeven will be achieved when the annual worth of both the process will be same in year 6..

Annual worth of process A= Fixed cost+Number of unit(Variable cost- Increase in variable cost(A/G,i,n))

=40000+ x(60-5(2.127))

= 40000+ 49.365x

Annual worth of process A= Fixed cost+Number of unit(Variable cost- Increase in variable cost(A/G,i,n))

= 40000+ x(60-5(A/G, 12%,6) )

=40000+ x(60-5(2.127))   

= 40000+ 49.365x

Annual worth of process B= Fixed cost+Number of unit(Variable cost- decrease in variable cost(A/G,i,n))

= 75000+ x(10+1(A/G, 12%,6) )

=75000+ x(10+1(2.127))   

= 75000+ 12.127x

Equating annual worth of both the processes

40000+ 49.365x= 75000+ 12.127x

35000=37.238x

x= 939.900

940 units approximately must be produced in year 6 for the two process to breakeven.

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