The process used by the Gourmet Food Company to produce dressings has annual fixed costs of $240,000 and variable costs of $0.5 per bottle. The company just entered into an agreement with a major national grocery store chain to sell its dressings. Sales volumes are expected to increase. Two new processes are being explored. The first has a fixed cost of $320,000 per year and variable costs of $.30/bottle. The second has fixed costs of $400,000 per year and variable costs of $.25 per bottle.
a. What are the indifference points between the processes?
b. If sales are expected to be 1,000,000 bottles which process should be used?