666.6 NOT 35800 Stapleton Manufacturing intends to increase capacity through the

Question

666.6 NOT 35800

Stapleton Manufacturing intends to increase capacity through the addition of new equipment. Two vendors have presented proposals. The fixed cost for proposal A is $61,000, and for proposal B, $33,000. The variable cost for A is $9, and for B, $14. The revenue generated by each unit is $16. a) What is the crossover point for the two options? The crossover point for the two options is 5600 units. (Round your response to the nearest whole number.) b) At an expected volume of 3,600 units, which alternative should be chosen? The profit (loss) if proposal A is accepted and 3,600 units are produced is $. (Round your response to the nearest dollar and include a minus sign if necessary.)

Explanation / Answer

Stapleton intends to increase the capacity and it has two options.

Option A -

Fixed cost = $61,000

Variable cost = $9

Revenue generated = $16

Total profit generated by the unit by deducting the variable cost = $16 - $9 = $7

But there is a fixed cost associated in buying the new equipment. So the break even point for option A is

X = 61,000 / 7 = 8715 = option A

Option B = 33,000/ 2= 16,500

Cross over point for option A

61,000 - 9 (5600) = 10,600

Crossover for option B

33,000 - 2 (5600) = 21,800

2) At an unexpected volume of 3600 units

Considering option A

61000 - 9 (3600) = 28,600 units

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