Bates Company plans to add a new item to its line of consumer product offerings. Two possible products are under consideration.
1 answer:
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Answer:
B. Company A's cost structure has higher fixed costs than B's.
Explanation:
Let's see the formula for income:
50,000 units x sales price - variable cost x 50,000 - fixed = net income
50,000 (sales - variable) - fixed = net income
At 50,000 both have equal net income.
Also we are given the fact that their sales is the same.
"identical except for cost structure"
So:
We work it and remove sales from the equation:
At 60,000 units, Company A has a higer income, so the increase of variable cost in company A is lower than company B
The cost of 10,000 more units is all variable cost, if Company A has more income, then their variable are lower.
If variable cost for 10,000 is lower, same applies for the variable cost for 50,000 so we have:
10,000Va < 10,000 Vb
50,000Va < 50,000Vb
So to have equal income at 50,000 units.
Fixed of A > Fixed of B