Question 9 7.5 points Save Ans An engineering firm measures its output in standa

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Question 9 7.5 points Save Ans An engineering firm measures its output in standard service hours (SSH) per unit, which is a function of the skill levels of its engineers (skill levels range from an engineering intern to an engineering scientist). The variable cost is $60 per SSH and the fixed cost is $2,000,000 per year. The firm charges $100 for each service per hour. Assume the maximum hours the firm operates (that is the output) is 170,000 per year. a) Compute the break-even point in SSH b) At what percentage does the break-even occur as compared to the maximum hours the firm operates? c) What is the percentage reduction in break-even point if the fixed cost can be reduced by 20%? d) Does the break-even point increase or decrease if the charges per service is increased by 10%? e) What is your recommendation? Should the firm reduce the fixed cost or increase the price? Attach File Browse My Computer Browse Content Collection

Explanation / Answer

Answer for a)

Breakeven point when Revenue equals cost

services per hour*charge per hour=Revenue

100*x

Cost=60x+2,000,000

100x=60x+2,000,000

40x=2,000,000

x=50,000

Ans for b)

50000/170000=5/17=29.4%

Ans c)

If FC is reduced by 20% then FC=1,600,000

100x=60x+1600000

x=1600000/40

x=400000

Hence Breakeven reduces by 20%

Ans d)

If charge per SSH becomes 110 then

110x=60x+2000000

50x=2000000

x=400000

Breakevn point will decrease by 20%

Ans for e)

They should reduce fixed cost

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