Weiss Manufacturing intends to increase capacity by overcoming a bottle neck ope

Question

Weiss Manufacturing intends to increase capacity by overcoming a bottle neck operation by adding new equipment. Two vendors have presented proposals. The fixed costs are $55,000 for proposal A and 75,000 for proposal B. In addition to the proposed fixed costs from the two vendors, Weiss’s Management anticipates that they will have to spend $8000 for installations to be completed. The variable cost is $12 for A and $12 for B. The revenue generated by each unit is $20.
The break even point in dollars for the proposal by vendor A= $___
The break even point in dollars for the proposal by vendor B=$___ Weiss Manufacturing intends to increase capacity by overcoming a bottle neck operation by adding new equipment. Two vendors have presented proposals. The fixed costs are $55,000 for proposal A and 75,000 for proposal B. In addition to the proposed fixed costs from the two vendors, Weiss’s Management anticipates that they will have to spend $8000 for installations to be completed. The variable cost is $12 for A and $12 for B. The revenue generated by each unit is $20.
The break even point in dollars for the proposal by vendor A= $___
The break even point in dollars for the proposal by vendor B=$___
The break even point in dollars for the proposal by vendor A= $___
The break even point in dollars for the proposal by vendor B=$___

Explanation / Answer

Ans:

Computation of fixed cost

Proposal A = $55000 + $8000

= $63000

Proposal B = $75000 + $8000

   = $83000

Computation Contribution per unit

Proposal A = Revenue per unit - Variable cost per unit

   = $20 - $12

   = $8

Proposal B = $20 - $12

= $8

a) Break even point in dollars for the proposal by vendor A = Fixed cost / contribution per unit

   = $63000 / $8

   = 7875 units

b) Break even point in dollars for the proposal by vendor B = Fixed cost / contribution per unit

   = $83000 / $8

   = 10375 units

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