A firm is about to undertake the manufacture of a product, and it is weighing the process configuration options. There are two intermittent processes under consideration, as well as a repetitive focus. The smaller intermittent process has fixed costs of $3,000 per month and variable costs of $10 per unit. The larger intermittent process has fixed costs of $11,000 per month and variable costs of $5 per unit. A repetitive focus plant has fixed costs of $41,000 per month and variable costs of $1 per unit. Required:
a. At what output does the large intermittent process become cheaper than the small one?
b. At what output does the repetitive process become cheaper than the larger intermittent process?

See below

Explanation:

Using this formula

Fixed cost of process B - fixed cost of process A ÷ unit variable cost of process A - unit variable cost of process B

a. Fixed cost = $11,000

Fixed cost = $3,000

Unit variable = $10

Unit variable = $5

Hence:

= ($11,000 - $3,000) / ($10 - $5)

= $7,000 / $5

= $1,400

This means that the larger intermittent process becomes cheaper than the small one by $1,400

b. Fixed cost = $41,000

Fixed cost = $11,000

Unit variable = $5

Unit variable = $1

= ($41,000 - $11,000) / ($5 - $1)

= $30,000 / $4

= $7,500

This means that the repetitive process become cheaper than the larger intermittent process by $7,500

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