Question

BrewCo sells coffeemakers for $120 each. The firm has variable costs per unit of $65 and total fixed costs of $330,000. In comparison, Java Inc. sells its coffeemakers for $135 each, has variable costs per unit of $70, and total fixed costs of $390,000. Based on these figures,

a. We cannot make any conclusions about either firm's break-even point.
b. BrewCo has a higher break-even point than Java Inc. in terms of units.
c. Java Inc. has a higher break-even point than BrewCo in terms of units.
d. BrewCo and Java Inc. have the same break-even point in units.

Answer 1

To determine which firm has a higher break-even point in terms of units, we calculate the break-even point for both BrewCo and Java Inc. BrewCo has a higher break-even point than Java Inc. in terms of units.

Step-by-step explanation:

To determine which firm has a higher break-even point in terms of units, we need to calculate the break-even point for both BrewCo and Java Inc.

The break-even point is the point at which a company covers all of its costs and starts generating profit. It can be calculated using the formula: Break-even point (in units) = Total fixed costs / (Selling price per unit - Variable costs per unit).

For BrewCo, the break-even point is: Break-even point = $330,000 / ($120 - $65) = 11,000 units. For Java Inc., the break-even point is: Break-even point = $390,000 / ($135 - $70) = 6,000 units.

Since BrewCo has a break-even point of 11,000 units and Java Inc. has a break-even point of 6,000 units, we can conclude that BrewCo has a higher break-even point than Java Inc. in terms of units.