2. A company is investigating three alternative production methods with differen

Question

2. A company is investigating three alternative production methods with different annual fixed costs and annual variable costs. For Alternative A these are $100,000 and $20.00 per unit; for B these are $200,000 and $5.00 per unit; and for C these are S150,000 and $7.50 per unit. (a) Make a Choice Table for the ranges of production units per year over which each alternative would be preferred. (b) If the company were to sell units at a price of $10.00 per unit, what would be the minimum number of units per year necessary to be profitable?

Explanation / Answer

contribution for A is negative since it do not have profit

Particulars Alternative A Alternative B Alternative C a Selling price $ 10.00 $            10.00 $            10.00 b Variable cost $ 20.00 $ 5.00 $ 7.50 c Contibution $          (10.00) $ 5.00 $ 2.50 d Fixed cost $        100,000 $        200,000 $        150,000 e No of Units breakeven N.A. $          40,000 $          60,000

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