24 February, 07:16

# A labor-intensive process has a fixed cost of \$320,000 and a variable cost of \$143 per unit. A capital-intensive (automated) process for the same product has a fixed cost of \$1,330,000 and a variable cost of \$92.50 per unit. Contributed by Paul R. McCright, University of South Florida. How many units must be produced and sold at \$208 each for the automated process to be preferred to the labor-intensive process

+2
1. 24 February, 07:22
0
More than 20,000 units must be produced and sold at \$208 each for the automated process to be preferred to the labor-intensive process.

Explanation:

Call X is the number of units must be produced and sold at \$208.

For capital-intensive (automated) process, Profit (P) = Sales - fixed cost - variable cost = \$208X - \$1,330,000 - \$92.50x = \$115.5x - \$1,330,000

For labor-intensive process, Profit (P) = Sales - fixed cost - variable cost = \$208X - \$320,000 - \$143X = \$65X - \$320,000

The automated process to be preferred to the labor-intensive process when Profit from capital-intensive (automated) process > Profit from labor-intensive process

\$115.5x - \$1,330,000 > \$65X - \$320,000

\$50.5X > \$1,010,000

X > 20,000 (units)

More than 20,000 units must be produced and sold at \$208 each for the automated process to be preferred to the labor-intensive process.