A firm is considering three alternative processes for manufacturing a new product. The fixed and variable costs for the three processes are given in Table 3.
The selling price for the new product is expected to be $50/unit.
a. Which is the least cost process at an annual output level of 5000?
b. Which process alternative would require the lowest volume of output to generate an annual profit of $220,000?
c. What is the average cost per unit at an output level of 12,000 units given that the company makes the optimal process choice for this output level?
d. Assume that the firm decides on Process A. What price should it charge to break even at a sales level of 5,000 units?