You run a manufacturing facility that makes roller skates. Fixed monthly cost is $50,000 in mortgage, $3,000 per employee on ave
rage in salaries (you have 40 employees) and $20,000 in other expenses. The cost of raw materials is $2 per skate, and other costs per skate average to about $1. You sell the skates for $19.95 each.
You have the option of outsourcing the manufacturing, which will cost you $10 per skate, with a lower fixed cost of $90,000. At what point will you be indifferent between manufacturing yourself versus outsourcing it?
You have the option of outsourcing the manufacturing, which will cost you $10 per skate, with a lower fixed cost of $90,000. At what point will you be indifferent between manufacturing yourself versus outsourcing it?
1 answer:
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Answer:
Break Even Point
In Units = 2,000 units
In value = $80,000
Explanation:
Break even Point =
When we use contribution per unit, we get the break even point in units sales.
When we use the contribution margin as a percentage of sales we get break even sales in value.
Contribution per unit = $20
Contribution margin in percentage = $20/$40 = 50%
Therefore, Break even Point in units =
Break even units = 2,000
Break Even Point in value =
Sales to be made in value at break even = $80,000