Question

Jenny Jennarator Co has the motto of placing a Jenny in every home in a state receiving more than 12 inches of snow per year. Facility A can handle 20 generators a month. The costs associated with setting up the production line are $ 22,500 and the material costs are $ 1300.00 per generator. Facility B is larger and can handle 42 generators a month. The costs associated with setting up the production line for generator B are $35,000 and the material costs are $ 950.00 per generator. The generators sell for $2500 each. a. The break-even point in units for generator type A- b. The break-even point in dollars for generator typeB-_[Select] c. Jenny Jenerator Company's Chief Procurement Officer (CPO) received a late bid from Facility Q. If Facility Qhas a fixed cost of $40,000 and a variable cost of $800.00 per unit, what should Jenny Jenerator do?

Answer 1

a. 19 units

b. $56,452

c. Facility B shall be chosen.

Step-by-step explanation:

As for the provided information,

We have

Costs under facility A

Cost per generator = $1,300

Setting up cost = $22,500

Number of generators = 20

Costs under facility B

Cost per generator = $950

Fixed cost = $35,000

Number of generators = 42

Selling price of generator = $2,500

a. Break even point for Type A, in units

=
`(Fixed\ cost)/(Contrbution\ per\ generator)`

Fixed cost = $22,500

Contribution per generator = $2,500 - $1,300(Variable cost) = $1,200

Break even point in units =
`(22,500)/(1,200) = 18.75`

since units can not be in decimals, it will be 19 units.

b. For type B contribution margin in percentage shall be:

Selling price - variable cost = $2,500 - $950 = $1,550

Contribution margin = 1,550/2,500 = 62%

Break even in dollars = $35,000/62% = $56,451.61

c. If facility Q has fixed cost = $40,000

and unit cost = $800

contribution = $2,500 - $800 = $1,700

Thus, break even in units = $40,000/1,700 = 23.5 = 24 units

As the break even for facility b = $35,000/1,550 = 22.58 = 23 units

Thus, since facility B has least break even the facility B shall be chosen, as for facility A the break even is low but profit will not be there as maximum capacity is 20 units.