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Tom Johnson Manufacturing intends to increase capacity through the addition of new equipment. Two vendors have presented proposals. The fixed costs for proposal A are​ $50,000, and for proposal​ B, $70,000. The variable cost for A is​ $12.00, and for​B, $10.00. The revenue generated by each unit is​ $20.00.​a) If the expected volume is​ 8,500 units, _______(proposal A or proposal
b) with a total profit = $______ should be chosen​(enter your response as a whole​ number).

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Answer:

For 8,500 units, proposal A provides a higher income ($3,000).

Explanation:

Giving the following information:

Proposal A:

Fixed cost= $50,000

Unitary cost= $12

Proposal B:

Fixed cost= $70,000

Unitary cost= $10

We need to choose the proposal with the higher income if 8,500 units are produced.

Proposal A:

Net income= 8,500*(20 - 12) - 50,000

Net income= $18,000

Proposal B:

Net income= 8,500*(20 - 10) - 70,000

Net income= $15,000

For 8,500 units, proposal A provides a higher income ($3,000).

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