A small company intends to increase the capacity of its 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 $40,000 for A and $30,000 for B; variable costs per unit would be $10 for A and $12 for B; and revenue per unit would be $15 for A and $ 16 for B. (LOB)
a. Determine each alternative’s break-even point.
b. At what quantity' would the two alternatives yield the same profit?
c. If expected annual demand is 12,000 units, which alternative would yield the higher profit?