Home Mathematics [SOLVED] Answered! A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A…

[SOLVED] Answered! A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A…

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February 17th, 2022

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 $36,000 for A and $31,000 for B; variable costs per unit would be $8 for A and $11 for B; and revenue per unit would be $16.

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a. Determine each alternative’s break-even point in units. (Round your answer to the nearest whole amount.)

QBEP,A ____ units

QBEP,B _____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? A or B?

Tag: at what volume of output would the two alternatives yield the same profit?

Expert Answer

Answer:- The break even for A is given by:-

36000+8x = 16x

8x =36000

x=4500

The break even for B is given as:-

31000+11x = 16x

5x=31000

x =6200

So, for A:- 4500 unit, B:- 6200 units

Answer:- The equal profit will be obtained when

36000+8x = 31000+11x

3x = 5000

x = 1666.67 units

Answer;- when annual demand is 11000 units

then for A:-

Profit= 11000*16 – 36000 – 8*11000

Profit= 176000-36000-88000

Profit= 52000

For B:-

Profit= 11000*16 -31000-11*11000

Profit= 24000

So option A provides greater profits.

Tag: at what volume of output would the two alternatives yield the same profit?

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