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?