Peggy lane Corp Problem 8.19 Question Help * Peggy Lane Corp, a producer of mach

Question

Peggy lane Corp Problem 8.19 Question Help * Peggy Lane Corp, a producer of machine tools, wants to move to a larger site. Two alternative locations have been identified: Bonham and McKinney. Bonham would have fixed costs of $820,000 per year and variable costs of $15,000 per standard unit produced McKinney would have annual ixed costs of $940,000 and variable costs of $13,900 per standard unit. The finished items sell for $29,000 each. a) The volume of output at which both the locations have the same proftstandard units (round your response to the nearest whole number)

Explanation / Answer

To be calculated:

Volume of output at which both the locations have the same profit

Given values:

Bonham location:

Fixed costs = $820,000 per year

Variable costs = $15,000 per standard unit

McKinney location:

Fixed costs = $940,000 per year

Variable costs = $13,900 per standard unit

Selling price = $29,000 per unit

Solution:

Let the volume of output at which both the locations have the same profit be represented by X.

Profit at Bonham location is calculated as;

Profit = Total Revenue - Total Costs

Profit (Bonham) = 29000X - (820000 + 15000X)

Profit (Bonham) = 14000X - 820000

Profit at McKinney location is calculated as;

Profit (McKinney) = 29000X - (940000 + 13900X)

Profit (McKinney) = 15100X - 940000

At X units, Bonham and McKinney locations will have same profit, therefore,

Profit (Bonham) = Profit (McKinney)

14000X - 820000 = 15100X - 940000

Solving for X, we get;

15100X - 14000X = 940000 - 820000

1100X = 120000

X = 109.09

X = 109 units

The volume of output at which both the locations have the same profit = 109 standard units

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