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 $ 12.00 for A and $ 10.00 for B. The revenue generated by each unit is $ 22.00.

Required:
a. What is the break-even point in units for proposal A?
b. What is the break-even point in units for proposal B?

Answer 1

Break-event point

Product A 6,000 units

Product B 6,250 units

Step-by-step explanation:

The break-even point is the level of activity that a business must operate to equate total revenue to total cost . At the break even point, the business makes no profit or loss., and the total contribution is equal to total fixed cost

The break-even point is calculated as follows:

Total general fixed cost/(selling price - variable cost)

Break-even point = 60,000/(22-12)=6000 units

Product B

Beak-even point = 75,000/(22-10)=6250 units

Break-event point

Product A 6,000 units

Product B 6,250 units