Dandle’s Candles will be producing a new line of dripless candles in the coming
ID: 2711903 • Letter: D
Question
Dandle’s Candles will be producing a new line of dripless candles in the coming years and has the choice of producing the candles in a large factory with a small number of workers or a small factory with a large number of workers. Each candle will be sold for $10. If the large factory is chosen, the cost per unit to produce each candle will be $2.40. The cost per unit will be $6.60 in the small factory. The large factory would have fixed cash costs of $1.8 million and a depreciation expense of $300,000 per year, while those expenses would be $570,000 and $100,000, respectively in the small factory. Calculate the accounting operating profit breakeven point for both factory choices for Dandle’s Candles.
Explanation / Answer
Break-even point is when revenues are equal to costs
Break-even units can be calculated using the formula as below
Units = FC / (P-V)
Here FC is Fixed Costs, P is price, V is variable Cost
Information we have is as follows
Breakeven units in
Small Factory are 197,059 units
Large Factory are 276,316 units
Small Factory large Factory FC 670000 2100000 P 10 10 V 6.6 2.4Related Questions
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