Peggy Lane Corp. a producer of machine tools, wants to move to a larger site. Tw

Question

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 __$13,000_____ per standard unit produced. McKinney would have annual fixed costs of 940,000______ and variable costs of __11,900____ per standard unit. The finished items sell for _30,000_____ each

a)     The volume of output at which both the locations have the same profit= ____ Standard units (round to nearest whole number)

Based on the analysis of the volume, after rounding the numbers to the nearest whole number,

           Bonham is superior below__________ standard units.

        c) Based on the analysis of the volume, after rounding the numbers to the nearest whole number,

McKinney is superior above_______ standard units.

d) the breakeven point for bonham is ___ units

The breakeven point for Mckinney is _____ units

Explanation / Answer

a) Volume of output at which both the locations have the same profit = Fixed cost of Mckinney - Fixed cost of Bonham) / (Variable of Bonham - Variable cost of Mckinney)

= (940000 - 820000)/(13000-11900)

= 109 standard units (rounded off)

b) Based on the analysis of the volume, after rounding the numbers to the nearest whole number,

Bonham is superior below__110__ standard units.

c) Based on the analysis of the volume, after rounding the numbers to the nearest whole number,

McKinney is superior above___109____ standard units.

d) Breakeven point for Bonham = Fixed cost/(Selling price - Variable cost) = 820000/(30000-13000) = 48.24 units

Breakeven point for Mckinney = Fixed cost/(Selling price - Variable cost) = 940000/(30000-11900) = 51.94 units

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