Back Problem 6 Answer New Case Co. produces a variety of storage cases Suppose t

Question

Back Problem 6 Answer New Case Co. produces a variety of storage cases Suppose that the set up cost is S5,000. This is a fixed cost that is incurred regardless of the number of units eventually produced. In addition, suppose that variable abor and material costs are S7 for each unit produced. Also, assume that the selling price per unit is S12. Fixed nvestment a) Variable Costs Selling Price a) What is the break-even point in revenue dollars? b) What is the break-even point in units? Break-Even Examploe Fixed Investment b) Fixed costs = $ 10,000 Directlabor- s1.50/nit Material $.7s/umit Selling price s400 per unit Variable Costs BEPs VIP 1.50+ 75)(4.00) $10,000 s22,857.14 S1-(VIP) Selling Price 4375 Production Volume BEP PV 400-(150 + 75) Recents Park ue Total Revenue Total Cost Total Profit

Explanation / Answer

Fixed cost (FC) = $5000

Variable cost (VC) = $7

Selling price(P) = $12

a) Break even point in units = FC /(P-VC) = 5000/(12-7) = 5000/5 = 1000 units

Break even point in revenue dollars = break even point in units x P = 1000 units x $12 = $12000

b) Break even point in units = FC (P-VC) = 5000/(12-7) = 5000/5 = 1000 units

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