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Question - PRIDE, Inc. recently acquired a factory which incurs fixed costs of P540,000 annually. The normal production capacity of the factory is set at 250,000 units of product XYZ per year at a variable cost of P9.00 per unit. Assuming that PRIDE, Inc. is able to sell of its production at P3.00 above variable cost, at what level should the company operate?
a. The company should produce at a level of 125,000 units a year in order to minimize variable costs
b. The company should produce at a level of 250,000 units a year in order to fully utilize the fixed costs
c. It would not matter, as the company would not be able to earn a profit even at full capacity
d. The company can produce at any level because it can realize a profit of P3.00 per unit over variable cost
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