Problem 1 A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have...

Solution 1:
a. Break even at each alternative:
    Particulars
    Project A
    Project B
    Annual fixed costs
    40000
    30000
    Revenue per unit
    15
    15
    Variable cost per unit
    10
    11
    Contribution margin per unit
    5
    4
     
     
     
    Break- even point (units) (fixed cost/ contribution margin per unit)
    8000
    7500
b. Calculation of volume yielding same profit:
(Contribution margin for A* units sold)- fixed costs for A = (Contribution margin for B* units)- fixed cost for B
(5* units sold)- 40000= (4* units sold) – $30,000
(5* units sold) = (4* units sold) – $30,000+ $40,000
(5* units sold) = (4* units sold) + $10,000
(5* units sold) - (4* units sold) = 10000
Units at same level profit = 10000 units
c. Sensitivity analysis:
For project A:
    Volume level
    5000
    10000
    12000
    15000
    20000
    Contribution margin per unit
    5
    5
    5
    5
    5
    Contribution margin
     25,000
     50,000
     60,000
     75,000
     1,00,000
    Less: Fixed costs
     40,000
     40,000
     40,000
     40,000
     40,000
    Net income
     -15,000
     10,000
     20,000
     35,000
     60,000
     
     
     
     
     
     
    If fixed cost increased by 6000 (12 *500)
     -21,000
     4,000
     14,000
     29,000
     54,000
    If fixed cost increased by 1200 (12*100)
     -16,200
     8,800
     18,800
     33,800
     58,800
    If fixed cost increased by 18000 (12*1500)
     -33,000
     -8,000
     2,000
     17,000
     42,000
The...