A manufacturing company is considering making and selling a new product. The fol

Question

A manufacturing company is considering making and selling a new product. The following data have been provided to management: lem 1 S17 50/unit $250,000 $50.000/year S $150,000/year Sales price Equipment cost Incremental overhead cost Sales and marketing cost Operating and maintenance cost $25/operating hour Production time/1,000 units Packaging and shipping cost Planning horizon Minimum attractive rate of return l 15 % 100 hours S0.50 unit 5 years You are asked to perform a break-even analysis for annual sales required to economically justify introducing the new product. Using numerical andgraphia methods, what is the break even value of units sold annually?

Explanation / Answer

Break even point is where Total Revenue earned from the sale of the product=Total cost incurred in the production or in other words, Total profit=0.

In the above case, let x be the total sales volume such that profit=0. Written mathematically this must mean,

17.50x=250000/(1.15)^5+50000+150000+2.5x+0.5x

17.50x=250000/(2.01)+200000+3x

14.50x=324378.12

x=22370.9 0r 22371(rounded off)

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