Breakeven Analysis Question:

A firm has decided to manufacture widgets. There are two production processes available for consideration. Process A involves the purchase of a $132,000 machine that will last for 10 years and have a $10,000 salvage value at that time. Annual operating and maintenance costs amount to $10,000 for the machine. In addition, using process A requires additional costs amounting to $0.90 per widget produced. The second process, Process B, requires an investment of $72,000 in a machine that at the end of 10 years has a salvaged value of $10,000. Annual operating and maintenance costs amount to $4,000 for this machine. There are additional costa of $1.20 per widget produced when Process B is used. Ignoring the time value of money (discounted cash flow), for what annual production volume(s) is Process A preferred? Clearly show the method you have used, and state and justify any assumptions that you have made. Discuss any significant risks that are associated with your conclusion