A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have been estimated. Annual fixed costs would be $36,000 for A and $31,000 for B; variable costs per unit would be $8 for A and $11 for B; and revenue per unit would be $16.
a. Determine each alternative’s break-even point in units. (Round your answer to the nearest whole amount.)
QBEP,A ____ units
QBEP,B _____units
b. At what volume of output would the two alternatives yield the same profit? (Round your answer to the nearest whole amount.)
Profit ____units
c. If expected annual demand is 11,000 units, which alternative would yield the higher profit? A or B?