Peggy Lane Corp., a producer of machine tools, wants to move to a larger site. Two alternative locations have been identified: Bonham and McKinney. Bonham would have fixed costs of $800,000 per year and variable costs of $14,000 per standard unit produced. McKinney would have annual fixed costs of $920,000 and variable costs of $13,000 per standard unit. The finished items sell for $29,000 each.
a) At what volume of output would the two locations have the same profit?
b) For what range of output would Bonham be superior (have higher profits)?
c) For what range would McKinney be superior?
d) What is the relevance of break-even points for these cities?