Question

Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs are $ 60 comma 000 for proposal A and $ 75 comma 000 for proposal B. The variable cost is $ 13.00 for A and $ 11.00 for B. The revenue generated by each unit is $ 24.00.What is the break-even point in units for proposal A?What is the break-even point in units for proposal B?

Answer 1

Proposal A: 5,455 units

Proposal B: 5,770 units

Step-by-step explanation:

The break-even point is the number of units required for the revenue to equal the total costs.

For proposal A:

Fixed Costs = $60,000

Variable Costs = $13 / unit

Selling Price = $24 / unit

`(P-VC)*n-FC = 0\\(24-13)*n-60,000 = 0\\n=5,454.5\ units`

For proposal B:

Fixed Costs = $75,000

Variable Costs = $11 / unit

Selling Price = $24 / unit

`(P-VC)*n-FC = 0\\(24-11)*n-75,000 = 0\\n=5,769.2\ units`

Rounding up to the next whole unit, the break-even points for proposal A and B, respectively, are 5,455 and 5,770 units.