6 value: 10.00 points Problem 5-4 A small firm intends to increase the capacity

Question

6 value: 10.00 points Problem 5-4 A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have been estimated. Annual fixed costs would be S36,000 for A and $31,000 for B; variable costs per unit would be S8 for A and $11 for B; and revenue per unit would be $16. a. Determine each alternative's break-even point in units. (Round your answer to the nearest whole amount.) OBEPA QBEP.B units units b. At what volume of output would the two alternatives yield the same profit? (Round your answer to the nearest whole amount.) Profit units c. If expected annual demand is 11,000 units, which alternative would yield the higher profit? Higher proft (click to select) References eBook & Resources

Explanation / Answer

a)as for break even point : fixed cost +variable cost =revenue

QBEPA =36000/(16-8)=4500

QBEPB =31000/(16-11)=6200

b)for same profit: let quantiy is x:

hence revenue -cost for A =revenue -cost for B

(16-8)x-36000=(16-11)x-31000

3x =5000

x=~1667

c)higher profit : A

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