43. (6 points) A company is considering two manufacturing processes for a produc

Question

43. (6 points) A company is considering two manufacturing processes for a product that will sell for $25 per unit.

Process A will require $10 in variable costs and $600,000 in fixed costs.

Process B will require $15 in variable costs and $300,000 in fixed costs.

a. What is the Breakeven Quantity for each Process?

b. Assuming 80,000 units are produced and sold, complete the values for Revenue, COGS, Gross Margin, Operating Expenses, Operating Profit, Gross Profit Margin, Operating Profit Margin for each process.

Process A

Process B

Explanation / Answer

Contribution margin per unit = Selling price per unit - Variable cost per unit

Break-even quantity = Fixed costs / Contribution margin per unit

a. Process A : Fixed costs = $ 600,000 and Contribution margin per unit = $ 15

Breakeven quantity = $ 600,000 / $ 15 = 40,000 units

Process B : Fixed costs = $ 300,000 and Contribution margin per unit = $ 10

Breakeven quantity = $ 300,000 / $ 10 = 30,000 units

b.

Process A Process B Sales ( 80,000 x $ 25) $ 2,000,000 $ 2,000,000 Variable Cost of Goods Sols $ 800,000 $ 1,200,000 Gross profit $ 1,200,000 $ 800,000 Operating expenses $ 600,000 $ 300,000 Operating profit $ 600,000 $ 500,000 Gross profit margin 0.60 / 60% 0.40 / 40% Operating profit margin 0.30 / 30% 0.25 / 25%

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