A firm is considering three capacity alternatives: A, B, and C. Alternative A would have an annual fixed cost of $105000 and variable costs of $24 per unit. Alternative B would have annual fixed costs of $126000 and variable costs of $25 per unit. Alternative C would have fixed costs of $82000 and variable costs of $37 per unit. Revenue is expected to be $52 per unit. a. Which alternative has the lowest break-even quantity?
b. Which alternative will produce the highest profits for an annual output of 10,000 units?
c. Which alternative would require the lowest volume of output to generate an annual profit of $50,000?

Solution :

                                      Alternative A          Alternative B            Alternative C

Annual fixed cost          105000                  126000                        82000

Variable fixed cost         24                             25                                  37

a). We have to find out the Break even quantity :

   Break Even quantity for A    

                                                = 3750 units

   Break Even quantity for B    

                                                = 4666 units

   Break Even quantity for C    

                                                = 5466 units

Therefore, Alternate A has the lowest Break Even quantity.

b). Now,

                = 280,000 - 105,000

                = 175,000

                = 270,000 - 126,000

                = 144,000

                = 150,000 - 105,000

                = 45,000  

Thus, alternate A has the highest amount of profit.

c).

Units of the target profit for A  

                                                 = 5535 units

Units of the target profit for B  

                                                 = 6517 units

Units of the target profit for C  

                                                 = 8799 units

Thus Alternative A will require the lowest volume of the output.

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know

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