A small firm intends to increase the capacity of a bottleneck operation by adding a new...

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A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, h

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Answer 1

Answer #1

a. Determine each alternative's break-even point in units.


QBEP,A	3600	units
QBEP,B	5167	units

Working Notes:

Break even = fixed cost / (revenue per unit - total variable cost)

Alternative A =	36000/(17 - 7)	3600
Alternative B =	31000/(17-11)	5167

b. At what volume of output would the two alternatives yield the same profit ( or loss)?

Q	1250	units

Working Notes:

Profit = quantity of output (Revenue per unit - Variable cost per unit ) - Fixed cost
Q = Volume of output

Profit A =	P(17-7)-36000 = P10-36000
Profit B =	P(17-11)-31000 = P6-31000
Same profit (Solve P)
Step 1 : P10-36000 = P6-31000
Step 2 : P10 = P6-31000+36000
Step 3: P10-P6 = 5000
Step 4 : P4=5000
Step 5 : P = 5000/4
Step 6 : P = 1250

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Answer 2

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