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Dillon, Jones, and Kline, Ltd. is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow. Model A: Variable costs, $17.00 per unit Annual fixed costs, $986,400 Model B: Variable costs, $11.80 per unit Annual fixed costs, $1,114,000 The selling price is $68 per unit for the universal gismo, which is subject to a 5 percent sales commission. (In the following requirements, ignore income taxes.)

How many units must the company sell to break even if Model A is selected? Calculate the net income of the two systems if sales and production are expected to average 42,000 units per year and which of the two systems would be more profitable? Assume Model B requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $450,000 and will be depreciated over a five-year life by the straight-line method. How many units must the company sell to earn $973,000 of income if Model B is selected? As in requirement (2), sales and production are expected to average 42,000 units per year. Ignoring the information presented in part (3), at what volume level will the annual total cost of each system be equal?

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