The owner of Hubig’s pie wants to expand its product line by offering a blueberr

Question

The owner of Hubig’s pie wants to expand its product line by offering a blueberry fried pie. This addition will require leasing additional equipment for a monthly payment of $6,000. It cost $1.10 per pie to make (Variable Cost) and the pies would retail for $1.50 each. How many pies must be sold to break even?

Fixed cost=$6000

Variable cost=1.10

Revenue= 1.50 Each

Fixed cost + (variable cost*volume)

The Haggar clothing company can cut all its production parts at a cost of $1.50 per unit if they purchase new spreading equipment at a cost of $896,000. A contractor in Dallas has submitted a bid to do this work at an annual contact cost of $87,200 and $1.75 per unit. The Hagger company cuts 21,500,000 units per year.

what is the breakeven point?

should hagger make or buy?

what is the annual cost saving using your choice to Make or Buy?

Explanation / Answer

Contribution = Revenue-Variable Cost = 1.50-1.10 = $0.40

Fixed cost = $6,000

Break-even point = 6000/0.40 = 15,000 units.

2. Relevant Costs under Alternative to Make:

Cutting costs = $322.5lacs

Machine costs = $8.96lacs

Total Costs = $331.46lacs

Relevant costs under Alternative to Buy:

Cutting costs = $376.25

Annual costs = $.872lacs

Total costs=$377.122lacs

Hence, Haggar should make the products on his own.

Annual cost savings = 377.122lacs - 331.46lacs = $45,66,200

Note: Breakeven pointt cannot be calculated ince sales price is not provided.

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