Two Manufacturing Processes Are Being Considered for Making a New

Essay

Two manufacturing processes are being considered for making a new product. Process #1 is less capital intensive, with fixed costs of $50,000 per year and variable costs of $700 per unit. Process #2 has fixed costs of $400,000 annually, with variable costs of $200 per unit.
a. What is the break-even quantity for the two processes?
b. If annual sales are expected to be 600 units, which process should be selected?
c. If lowest overall costs per year is your overall objective, for what range of annual production quantities should you select Process #1? Process #2?
d. Operations and Engineering have found a way to reduce the cost of Process #2, such that the fixed costs for this process decrease from $400,000 to $300,000 annually. All other costs remain the same (Process #1 fixed = $50,000 / year, Process #1 variable = $700 / unit, Process #2 variable = $200 / unit). What is the new break even quantity between the two processes?
e. Does this change the process selection for the annual sales volume of 600 units? If so, for what range of annual production quantities should you select Process #1 and Process #2?