Homework Answers
a)
Breakeven Volume = Fixed Cost / ( Selling price per unit - Variable cost per unit)
So,
Breakeven volume for Process A = 500000 / (35 - 25)
= 500000 / 10
= 50,000 units
b)
Breakeven volume for Process A = 750000 / (35 - 23)
= 750000 / 12
= 62,500 units
c)
Total Volume = 120000 units
Total Cost for Process A = Fixed Cost + (Variable cost per unit x Total Volume)
= 500000 + ( 25 x 120000)
= 500000 + 3000000
= $ 3,500,000
Total Cost for Process B = 750000 + ( 23 x 120000)
= 750000 + 2760000
= $ 3,510,000
Total Revenue for each Process = Selling price per unit x Total Volume = 35 x 120000 = $ 4,200,000
So,
Total Profit for Process A = 4200000 - 3500000 = $ 700,000
Total Profit for Process B = 4200000 - 3510000 = $ 690,000
Since Process A has a higher profit, the company should select Process A with a profit of $ 700,000 to maximize profit.
So, Option c is the correct answer.
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