Kelly Kneppy owns a company that manufactures and sells camping equipment and outdoor

gear. Kellys latest creation is the Bear-B-Gone, a tent constructed of Kevlar and reinforced steel

mesh that could theoretically protect campers (who hadnt followed appropriate food storage

guidelines) from bear attacks. Kelly believes the Bear-B-Gone offers many of the same desirable

features as other tents on the market, and that this extreme safety feature will make it one of the

best-selling tents in short order.

Kelly can make the Bear-B-Gone with one of two available technologies. The first is a labor-

intensive process, that if chosen will require $600,000 per year in fixed overhead costs, and the

following in variable costs of production per unit: direct materials of $75, direct labor of $75,

and overhead of $20. The second technology is a more automated (machine-dependent) process,

that if chosen will require $2,000,000 per year in fixed overhead costs, and the following in

variable costs of production: direct materials of $75, direct labor of $5, and overhead of $60.

Kelly believes she can sell the tent for $200.

1. Suppose possible sales are expected to range between 40,000 and 60,000 units as noted

above, and that production will equal sales (no beginning/ending inventory). Which

process has the greater range in profit? Why might this be a factor for Kelly to consider in making her decision?

Assume sales were to fall at the midpoint of the projections above, 50,000 units.

Now, under which process would you say Kellys profit

is more sensitive to changes in demand (sales)? Why? Does this make one of the options

strictly better than the other? Why or why not?