Company "A" and "B" sell an identical product: one uses labor saving equipment
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Company "A" and "B" sell an identical product. Company "A" utilizes new and expensive labor saving capital equipment in the manufacturing process. Company "B" instead uses older manufacturing equipment that requires a greater amount of labor in the manufacturing process.
The products sell for the same price per unit. Compute the required level of sales (units/sales) for each company if a $2,000 profit is desired.
COMPANY "A" COMPANY "B"
Fixed costs = $150,000 Fixed costs = $ 50,000
Variable Costs = $150 per unit Variable Costs = $ 250 per unit
Sales price = $ 300 per unit Sales price = $ 300 per unit.
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Solution Summary
The solution calculates the two alternatives to demonstrate the differences in using new labor savings capital equipment. It shows all the math.
Solution Preview
Profit = (price - average Variable Costs)*units sold - Fixed costs
or,
Profit + Fixed costs = (price - average Variable ...
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