Janet\'s Jolly Jerseys has decided that it needs to add a new workstation. Janet

Question

Janet's Jolly Jerseys has decided that it needs to add a new workstation. Janet has shopped around and found two types of workstations, with different costs and revenues. Per-unit revenue is $15. For workstation type A, annual fixed costs are estimated to be $37,000, and variable costs per unit would be $10. For workstation type B, annual fixed costs are estimated to be $33,000 and variable costs per unit would be $11 for B. a. What is the break-even point for each workstation? (Round up or down to the nearest whole number.) QBEP,A units QBEP,B units b. What is the output level at which the two types of workstations result in the same amount of profit? Hint: this is the "indifference point." (Round up or down to the nearest whole number.) Profit units c. If annual demand is forecast to be 14,000 units, which workstation should Janet buy in order to maximize profit? Higher profit (Click to select)AB Please show all work.

Explanation / Answer

A.

B.

Equivalence point = Q

15 Q - 10 Q - 37000 = 15 Q - 11 Q - 33000

37000 - 33000 = Q

Q = 4000 Ans B

C.

Profit

FC = fixed cost

VC= variable cost

So

Hence option A is better.

Option A Option B Fixed cost 37000 33000 Variable cost 10 11 Per unit revenue 15 15 Break even Point = Fixed cost/(Per unit revenue- Variable cost) 7400 8250 Ans A 37000/(15-10) 33000/(15-11)

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