You work for Bellevue Window Products. While performing an analysis for a new wi

Question

You work for Bellevue Window Products. While performing an analysis for a new window product, you found a report from last year that provided the following information regarding the manufacture of a similar product: annual production rate = 40,000 units; selling price = $69 per unit; fixed production cost = $250,000 per year; variable production cost = $1,680,000 per year; and variable selling expenses = $89,000 per year.

As a first-cut, you decide to use this information to estimate the breakeven production rate per year.

The breakeven production rate per year is estimated to be ( ) units per year.

Explanation / Answer

Total variable cost = $1680000 + $89000 = $1769000

Variable cost per unit = 1769000/40000 = $44.225

Breakeven point = Fixed cost / (selling price per unit – variable cost per unit)

Breakeven point = 250000/(69-44.225)

Breakeven point = 10090.82 or 10091 units

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