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The Hi-Fi manufacturing company is currently evaluating two possible processes for the manufacture of a toy, and makes available to you the following information. Process

The Hi-Fi manufacturing company is currently evaluating two possible processes for the manufacture of a toy, and makes available to you the following information.

Process A

(Sh.)

Process B

(Sh.)

Variable cost per unit

Sales price per unit

Total fixed costs per year

Anticipated sales (next 2 years in units)

Capacity in units

12

20

3,000,000

400,000

430,000

14

20

2,100,000

400,000

500,000

You are required to suggest:

Which process should be chosen? Substantiate your answer.

Would you change your answer as given above if you were informed that the capacities of the two processes are as follows; A 600,000 units and B 500,000 units. Why? Substantiate your answer

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