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1) Two production processes A, B have the following cost structure as shown in the diagram below: (15 min) 20 marks Process Fixed Cost
1) Two production processes "A, B" have the following cost structure as shown in the diagram below: (15 min) 20 marks Process Fixed Cost per Year A $109,000 B $76,000 Variable Cost per Unit $4.00 $5.50 List of formulas: Profit = Revenue - Total cost Revenue = Selling price * volume Total cost = Fixed cost + cost per item * volume Break even volume = (Fixed cost)/ (Unit contribution margin) a. What is the most economical process for a volume of 6,800 units? (8 marks) b. How many units per year must be sold with process B to have annual profits of $75,000 if the selling price is $12.5 per unit? (6 marks) c. Calculate the break-even volume for process A assuming $12.5 selling price. (6 marks)
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