Question

A company can manufacture a product using hand tools. Tools will cost $1,000, and the manufacturing cost per unit will be $1.50. As an alternative, an automated system will cost $15,000 with a manufacturing cost per unit of $0.50. With an anticipated annual volume of 5,000 units and neglecting interest, the breakeven point (years) is most nearly: a) 2.8. b) 3.6. c) 15.0. d) None.

Answer 1

Number of break-even point (years) = 2.8 years

Step-by-step explanation:

Given:

Tools cost = $1,000

Manufacturing cost = $1.50 per unit

Total unit = 5,000

Automated cost = $15,000

Manufacturing cost per unit = $0.50

Computation:

Total unit cost = 5,000 × $1.50

Total unit cost = $7,500

Total Automated cost = 5,000 × $0.50

Total Automated cost = $2,500

Excess cost = $15,000 - $1,000 = $14,000

Number of break-even point (years) = $14,000 / 5,000

Number of break-even point (years) = 2.8 years