Murali Aromatics Inc. is a fictional manufacturer of aromatic oils and perfumes. Demand for the company’s products has been increasing steadily for the past five years, and capacity of the existing process cannot support any future demand growth, Therefore, the owner of the company, Capt. Muralidharan, is planning to invest in a new process that will have the production capacity handle any demand increases in the future for the company’s products. He has two alternatives processes to choose from: Process A will require an initial investment of US$50,000 for plant and equipment, and the variable cost per unit of output (labor and material) will be US$10. Process B will require an initial investment of US$30,000 for plant and equipment, and the variable cost per unit will be US$15.

1. Which process should Capt. Muralidharan choose if the annual expected production volume is 7,000 units?

2. At what production volume would Capt. Muralidharan be indifferent between choosing either process A or process B?