Question

Peggy Lane​ Corp., a producer of machine​ tools, wants to move to a larger site. Two...

Peggy Lane​ Corp., a producer of machine​ tools, wants to move to a larger site. Two alternative locations have been​ identified: BonhamBonham

and McKinneyMcKinney. BonhamBonham would have fixed costs of $800,000 per year and variable costs of $14,000 per standard unit produced.

McKinneyMcKinney would have annual fixed costs of $920,000 and variable costs of $13,000 per standard unit. The finished items sell for $29,000

each.

​a) The volume of output at which both the locations have the same profit​ = ________ standard units.

PLEASE SOLVE PART A. THANKS!

Homework Answers

Answer #1

​​120 units

Let's assume x is the number of units

Bonham total costs :

fixed costs + variable costs = 800,000 + 14,000x

MckinneyMckinney total costs :

Fixed costs + variable costs = 920,000 + 13000x

Comparing both situations

800,000 + 14,000x = 920,000 + 13,000x

1000x = 120,000

X = 120

at 120 units ,both the options will have the same amount of profit

At 120 units ,

Profit at BonhamBonham = 120×29,000 -800,000 - 120×14000 = $100,000

Profit at McKinneyMckinney = 120× 29,000 - 920,000 -120×13000 = $100,000

As explained and solved above ,both locations have same profit at 120 units.

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