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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,
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 $44,000 for A and $20,000 for B; variable costs per unit would be $10 for A and $11 for B; and revenue per unit would be $19. a. Determine each alternative's break-even point in units. (Round your answer to the nearest whole amount. 5 points) b. At what volume of output would the two alternatives yield the same profit (or loss)? (Round your answer to the nearest whole amount. (5 points) c. If expected annual demand is 18,000 units, which alternative would yield the higher profit (or the lower loss)? (5 points) d. If the firm sell 2,000 units per month, what is payback time in months in both cases? (3points) Which alternative you will choose based on this information? ( 2 points)
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