A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A & B, have been identified, and the associated costs and revenue have been estimated. Annual fixed costs would be $15000 for A and $ 35000 for B; Variable cost per unit would be $ 12.8 for A and $ 6.3 for B; and revenue per unit would be $ 18.45.
1. Determine each alternatives breakeven point in units?
2. At what volume of output would the two alternatives yield the same profit?
3. If the expected demand is 2000 units, which alternative would yield the higher profit?