Enrun Corp. currently manufactures a small motor used by the automotive industry
ID: 2449304 • Letter: E
Question
Enrun Corp. currently manufactures a small motor used by the automotive industry. The motor sells for $100 a unit. Variable costs are $60 per unit, and fixed manufacturing costs total $10,000,000 annually. You are asked to evaluate a proposed change in the production methods used by Enrun. The change is expected to reduce variable manufacturing costs by $10 per unit. However, fixed costs will increase by $4,000,000 per year. Compute the breakeven point under the current manufacturing process. Compute the breakeven.point-under the proposed manufacturing change. As a manager, would you support/oppose the proposed change?Explanation / Answer
a)Contribution per unit =selling price - variable cost
= 100- 60
= 40
BEP(units) =Fixed cost /Contribution per unit
= 10,000,000 / 40
= 250,000 units
b)New contribution per unit = [100 - (60-10)]
= 100 - 50 = 50
new fixed cost = 10,000,000 + 4,000,000
= 14,000,000
BEP (units) = 14,000,000 /50
= 280,000 units
c)since the company's Break even point is increase if proposed change is undertaken ,As a manager i will oppose such change as company has to sell more units to achieve or make it profitable .
BEP =
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