Question

Sroufe Manufacturing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs are $50,000 for proposal A and $70,000 for proposal B. The variable cost is $12.00 for A and $10.00 for B. The revenue generated by each unit is $20.00.

The break-even point in units for the proposal by Vendor A = unit

Answer 1

To calculate the break-even point for Sroufe Manufacturing's proposal from Vendor A, divide the fixed cost ($50,000) by the difference between revenue per unit ($20.00) and variable cost per unit ($12.00), resulting in a break-even point of 6,250 units.

Step-by-step explanation:

To determine the break-even point in units for Sroufe Manufacturing's proposal by Vendor A, we must first understand that the break-even point is the level at which total revenues equal total costs, resulting in no profit or loss.

The fixed costs and variable costs contribute to finding this point.

The fixed cost for Vendor A's proposal is $50,000, and the variable cost per unit is $12.00. With each unit generating a revenue of $20.00, the break-even formula is:

Break-Even Point in Units = Fixed Costs / (Revenue per Unit - Variable Cost per Unit)

Therefore, for Vendor A, it would be:

Break-Even Point in Units = $50,000 / ($20.00 - $12.00)

The computation yields:

Break-Even Point in Units = $50,000 / $8.00 = 6,250 units

To summarize, Sroufe Manufacturing will need to produce and sell 6,250 units to cover all the fixed and variable costs and to break even on the investment in new equipment proposed by Vendor A.