Question

Use the following information for the next 3 questions. Thompson Company is considering the development of two products: Alpha and Beta. Regardless of which product is introduced, the anticipated selling price will be $50. Manufacturing cost information follows: Alpha Beta Annual fixed costs $200,000 $300,000 Variable cost per unit) $30 $20 16. Which of the two products will be more profitable at a sales level of 20,000 units? a. Alpha b. Beta 17. Refer to the previous question. By what amount is the product (Alpha or Beta) more profitable? 18. At what volume level (i.e., number of units) will the profit for the two products be the same?

Answer 1

Income statement

	Alpha	Beta
Sales	20,000 x 50 = 1,000,000	20,000 x 50 = 1,000,000
Variable costs	20,000 x 30 = - 600,000	20,000 x 20 = - 400,000
Contribution margin	400,000	600,000
Fixed costs	- 200,000	- 300,000
Profit	$200,000	$300,000

16.

At sales level of 20,000 units, Beta is more profitable.

17.

Beta is more profitable by $100,000

18.

Let for K number of units, profit is same for Alpha and Beta.

Profit for Alpha = Profit for Beta

Sales - Variable costs - Fixed costs = Sales - Variable costs - Fixed costs

50K - 30K - 200,000 = 50K - 20K - 300,000

10K = 100,000

K = 10,000

Hence, at 10,000 units, profit will be same for both Alpha and Beta.

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