Question

You are a manufacturing engineer and have been asked to project the costs required to produce a new line of products for your company. after contacting the appropriate equipment manufacturers and consulting with management about labor and overhead costs, you determine that the manufacturing line will cost $8.3 million to get into operation. the marketing department tells you that the company can expect to see a profit of $37.50 per item produced and that they can sell 1500 items per day in big chain stores. you run into your boss at the coffee machine and he/she casually asks you what the bep will be for your new line. what do you tell him/her?

Answer 1

The break-even point for the new product line with an $8.3 million startup cost and a profit of $37.50 per item selling 1500 items per day will be reached after selling 221,333.33 units, which equates to about 148 days of sales.

Step-by-step explanation:

You mentioned that as a manufacturing engineer you need to determine the break-even point (BEP) for a new product line that has a startup cost of $8.3 million and an expected profit of $37.50 per item. By selling 1500 items per day, we can calculate the BEP. The BEP is the point at which the total revenue equals the total costs, thus no profit or loss is made. It can be calculated using the following formula:

BEP (in units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

In your case, the BEP would be:

BEP = $8,300,000 / $37.50 = 221,333.33 units

To find out how many days it will take to reach the BEP, we divide the units by the number of units sold per day:

Days to BEP = 221,333.33 units / 1500 units per day = approximately 147.56 days

So, you would inform your boss that the break-even point would be reached in about 148 days of continuous sales at the projected pace.