Stapleton Manufacturing intends to increase capacity through the addition of new

Question

Stapleton Manufacturing intends to increase capacity through the addition of new equipment. Two vendors have presented proposals. The fixed cost for prof $61,000, and for proposal B, $33,000. The variable cost for A is $9, and for B, $14. The revenue generated by each unit is $16. a) What is the crossover point for the two options? The crossover point for the two options is 5600 units. (Round your response to the nearest whole number.) b) At an expected volume of 3,600 units, which alternative should be chosen? The profit (loss) if proposal A is accepted and 3,600 units are produced is $ .

Explanation / Answer

Proposal FC VC REVENUE GENERATED A $   61,000 $   9 $                                    16 B $   33,000 $ 14 $                                    16 a) Crossover point: Say crossover point is x units Then, 61000 + 9 x = 33000 + 14 x Solving for x: 5 x = 28000 x= 5600 units the crossover point for the two options is 5600 units b) Volume 3600 units Profit/Loss = Revenue - Total Cost Total Cost , TC = FC+(VC/unit * volume) IF porposal A is chosen : Profit/Loss $ -35,800 ( negative sign implies loss) IF porposal B is chosen : Profit/Loss $ -25,800 ( negative sign implies loss) Since, the loss generated in Proposal B is less than in Proposal A for the given volume Proposal B should be chosen The Loss if Proposal A is accepted and 3600 units are produced is $ 35800.

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