Asked by Naldo Lewis on Sep 22, 2024
Verified
A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $80. The new production line would manufacture up to 9,000 units at a variable cost of $15 per unit. Fixed costs would be $150,000. Variable selling and administration expenses would amount to $5. Determine the break-even point as a percent of capacity.
A) 27.78%
B) 28.55%
C) 29.32%
D) 32.45%
E) 41.62%
Break-even Point
The point of business operation at which revenues equal expenses, resulting in no net loss or gain.
Variable Costs
Expenses that change in direct proportion to the amount of production or the volume of sales.
Fixed Costs
Costs that do not change with the level of production or sales, such as rent, salaries, and insurance expenses.
- Master the concepts and determination of break-even points, quantified in units and in financial value.
- Explore the influence of capacity utilization on net profits and the computation of break-even points.
Verified Answer
DK
Damanpreet kaur Guron2 days ago
Final Answer :
A
Explanation :
The break-even point in units is calculated by dividing the total fixed costs by the contribution margin per unit, where the contribution margin per unit is the selling price per unit minus the variable cost per unit (including variable production and selling costs). Here, the contribution margin per unit = $80 - $15 - $5 = $60. The break-even point in units = $150,000 / $60 = 2,500 units. To find the break-even point as a percent of capacity: (2,500 units / 9,000 units) * 100 = 27.78%.
Learning Objectives
- Master the concepts and determination of break-even points, quantified in units and in financial value.
- Explore the influence of capacity utilization on net profits and the computation of break-even points.