2. A small firm intends to increase capacity of a bottleneck operations by adding new machine.

The alternatives, A and B, have been identified, and the associated cost and revenues have been estimate Annual fixed cost would be P40,000 for A and P30,000 for B; variable cost per unit would be P10 for A and for B; and revenue per unit would be P15 for A and P16 for B. a.) Determine the alternative's break even? b.) What profit would be realized on a monthly volume of 61,000 units? c.) What volume is needed to obtain a profit of P16,000 per month? Answer: A. Alternative A Given: FC = P40,000 VC = P10 per unit TR = P15 per unit BEP units = FC SP - VC 40,000 15 - 10 40,000 5 FC = P30,000 VC = P12 per unit TR = P16 per unit BEP units = FC SP - VC 30,000 16 - 12 30,000 4 Alternative B

BEP units = 8,000 units

BEP units = 7,500 units

B. Alternative A P = = = = = TR - TC SPx - [ VCx + FC ] 15 (61,000) - [ 10 (61,000) + (40,000/12)] 915,000 - 613,333.33 Alternative B P = = = = =

TR - TC SPx - [ VCx + FC ] 16 (61,000) - [ 12 (61,000) + (30,00 976,000 - 734,500

P 301,666.67 per month

P 241,500 per month

C. Alternative A X = = P + FC CM 16,000 + (40,000 / 12) 15 - 10 Alternative B X = = P + FC CM 16,000 + (30,000 / 12) 16 - 12

X =

3,866.67 or 3,867 units

X =

4,625 units

machine. ues have been estimated. would be P10 for A and P12

- [ 12 (61,000) + (30,000/12)]

per month