Question

The Harris company has 3 options for a new production process. A Labor-Intensive process (A) would cost $350,000 for equipment and $35 for labor and materials for each item produced. A More Automated process (B) costs $970,000 in equipment but has a labor/material cost of $30 per item produced. A Fully Automated process (C) costs $2,510,000 for equipment and $22 per item produced. Based solely on cost, for what range of production should process B be chosen

Answer 1

B is more profitable when the production level is higher than 124,000 units, but lower than 192,500

Step-by-step explanation:

the difference between B and A per unit = $5

the difference in investment = $970,000 - $350,000 = $620,000

B is more profitable when total output is higher than $620,000 / $5 = 124,000 units

the difference between C and A = $8

the difference in investment = $2,510,000 - $970,000 = $1,540,000

C is more profitable when total output is higher than $1,540,000 / $8 = 192,500 units