Three production processes - A, B, and C - have the following cost structure:?
Process FC per Year VC per unit
A $110,000 $2.00
B $80000 $4.00
C $75000 $5.00
a) What is the most economical process for a volume of 8,000 units?
b) How many units per year must be sold with each process to have annual profits of $50,000 if the selling price is $6.95 per unit? What is the most economical process?
c) What is the break-even volume for each process? What is the most economical process?
d) At what volume would each process be preferred, based solely on cost, and with a production capacity limit of 20,000 units? Are there any indifference points (i.e. volumes), based solely on cost?