Two different manufacturing processes are being consideredfor making a new product. The first process is less capitalintensive, with fixed costs of only $50,000 per year andvariable costs of $700 per unit. The second process has fixedcosts of $400,000 but has variable costs of only $200 per unit.a. What is the break-even quantity beyond which the secondprocess becomes more attractive than the first?b. If the expected annual sales for the product is 800 units,which process would you choose?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Two different manufacturing processes are being considered
for making a new product. The first process is less capitalintensive, with fixed costs of only $50,000 per year and
variable costs of $700 per unit. The second process has fixed
costs of $400,000 but has variable costs of only $200 per unit.
a. What is the break-even quantity beyond which the second
process becomes more attractive than the first?
b. If the expected annual sales for the product is 800 units,
which process would you choose?

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