Question

Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs for proposal A are $50,000, and for proposal B. $70,000. The variable cost for A is $12.00. and for B. $10.00. The revenue generated by each unit is $20.00. What is the break-even point in units for proposal A? What is the break-even point in units for proposal B?

Answer 1

Answer:

6,250 units; 7,000 units

Explanation:

Given that,

Fixed costs for proposal A = $50,000

Fixed costs for proposal B = $70,000

Variable cost for A = $12.00

Variable cost for B = $10.00

Revenue generated by each unit = $20.00

Let x be the number of units at break even point,

(a) Condition for break-even point in units:

Total cost = Total revenue

Fixed cost + Variable cost = (Number of units × Revenue generated by each unit)

50,000 + 12x = 20x

50,000 = 8x

6,250 = x

(b) Condition for break-even point in units:

Total cost = Total revenue

Fixed cost + Variable cost = (Number of units × Revenue generated by each unit)

70,000 + 10x = 20x

70,000 = 10x

7,000 = x