Two different manufacturing processes are being considered for making a new product. The first process is less capital-intensive, with fixed costs of only $50,700 per year and variable costs of $720 per unit. The second process has fixed costs of $402,000 but variable costs of only $225 per unit.
a) What is the break-even quantity, beyond which the second process becomes more attractive than the first?
-The volume at which the second process becomes more attractive is 709.70.
b) If the expected annual sales for the product is 800 units, which process would you choose?
-Since the production volume at which the second manufacturing process becomes more attractive is lower than the expected annual sales for the product, you should choose the second manufacturing process.
c) Verify your answer using spreadsheet software (MS Excel), while using the same values. Conduct the break-even analysis and draw a graph that displays the intersection of the total cost lines (breakeven point). Plot the total cost columns in a line chart. Use the quantity as x-axis label. Increase the max quantity as necessary (keeping the increments equal) to see all the breakeven intersections.
Please answer part c.