Question

Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.

Model no. 6754:
	Variable costs, $19.00 per unit
	Annual fixed costs, $986,200

Model no. 4399:
	Variable costs, $12.80 per unit
	Annual fixed costs, $1,114,600

Corrigan’s selling price is $70 per unit for the universal gismo, which is subject to a 5 percent sales commission. (In the following requirements, ignore income taxes.)

4. Ignoring the information presented in part 3, at what volume level will the annual total cost of each system be equal? (Do not round intermediate calculations and round your final answer up to nearest whole number.)

Volume level -

units -

  

Answer 1

Let the volume level at which the annual total cost of each system be equal = K units

For model no. 6754

Variable cost per unit = $19

Annual fixed cost = $986,200

Total variable cost = Variable cost per unit x Number of units

= 19K

Total cost = Total variable cost + Total fixed cost

= 19K + 986,200

For model no. 4399

Variable cost per unit = $12.80

Annual fixed cost = $1,114,600

Total variable cost = Variable cost per unit x Number of units

= 12.80K

Total cost = Total variable cost + Total fixed cost

= 12.80K + 1,114,600

Total cost of model no. 6754 = Total cost of model no. 4399

19K + 986,200 = 12.80K + 1,114,600

19K-12.80K = 1,114,600-986,200

K = 128,400/6.2

= 20,710 units

Volume level

20,710

units