Exercise 2-3 Cost comparison method

- Comparison ofalternatives with critical values A company is considering launching a new product. To produce this product a machine is necessary. The company must choose between two methods of production. The company uses an interest rate of 5 %. The financial details of both alternatives are as follows:

Alternative I Alternative II Initial outlay in € 800,000 1,000,000 Economic life in years Annual capacity in units 6,500 7,000 Variable production cost in € per unit 150 130 Other costs in € per year 60,000 70,000 Personell costs in € per year 210,000 240,000 Sales price in € per unit 220 220 Based on the cost comparison method, calculate when both alternatives are equal. Interpret the calculated value: At which level of unit production is the acquisition of which machine desirable? Check your result.