Management is considering two production processes - Alpha and Omega. The cost s

Question

Management is considering two production processes - Alpha and Omega. The cost structure that the firm would face for each process is summarized below:| The selling price per unit regardless of the production process will be $200. Capacity for both production processes is 150,000 units. REQUIRED: Compute the break - even point in units for both production processes. At what level of sales (units) will profits be identical for the two production processes? Alpha Omega If sales aie unlikely to be less than 65,000 units, which production process should management select?

Explanation / Answer

a) Looks fine the way you have it.

b)100x-2,000,000= 120x-3,000,000

20x= 1,000,000

x= 50,000 (level of sales for identical profits)

c)Omega, because at 65,000 the additional variable margin (65,000*20= 1,300,000) exceeds the additional fixed costs (1,000,000)

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