Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options...
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Patterson Products Inc. is considering an upgrade to its manufacturing equipment. The two upgrade options under consideration are shown below. Option 1 Option 2 Direct material cost per unit 97.2 64.8 Direct labour cost per unit 68 61 Variable overhead per unit 29.2 57.8 Fixed manufacturing costs 2,170, 000 $ 5,788, 000 The selling price of the company's product is $324 per unit with variable selling costs of 10% of sales. Fixed selling and administrative costs are $3,470,000 per year. There would be no change to the selling price, variable selling costs, or fixed selling and administrative costs as the result of the manufacturing equipment upgrade. Required: 1. At what annual number of unit sales would Patterson Products Inc. be indifferent between the two upgrade options? Annual number of unit sales 2. If demand falls short of the indifference point calculated in part (1), which option would be preferred? O Option 1 O Option 2
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