Breakeven Problem 1. Avila Manufacturing plans to increase capacity by adding ne

Question

Breakeven Problem

1. Avila Manufacturing plans to increase capacity by adding new equipment. They have received two proposals.

Fixed Cost Variable Cost/Unit

Proposal A $32,000 $12.00

Proposal B $50,000 $10.00

The revenue generated by each unit is $20.00.

a. What is the break-even point in units (when profit = zero) for Proposal A?

b. What is the break-even point in units (when profit = zero) for Proposal B?

c. Draw the lines represented by both Proposal A and B on an X-Y coordinate graph with Units on the X axis and Profits on the Y axis.

Use the form y = mx + b or

Profit = (Revenue/unit

Explanation / Answer

Part A:

a.
break-even point in units for Proposal A:
let it be x,
32000 + 12 * x = 20*x
=>x = 4000 units
b:
break-even point in units for Proposal B:
let it be x,
50000 + 10 * x = 20*x
=>x = 5000 units
d:
unit volume do the lines intersect for Proposal A and B:
32000 + 12 * x = 50000 + 10 * x
=>x = 9000 units


Part B:
a:
taking 120000$ bench mark, i.e. 100
so, the company performance is:
100 / 120000 * 100000 = 83.33
b:
Return on Assets:
Clint: 45000 / 2000 = 22.5
Industry av: 60000 / 2200 = 27.27
SO, the clint's average is too low.
c:
The overall performance of the clint is very low. It is lower in all components of the market.
It is an average 15 to 20% lower.

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