Markland Manufacturing intends to increase capacity by overcoming a bottleneck o
ID: 358957 • Letter: M
Question
Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs are $55,000 for proposal A and $80,000 for proposal B. The variable cost is $13.00 for A and $11.00 for B. The revenue generated by each unit is $24.00.
a) The break-even point in units for the proposal by Vendor A = units (round your response to the nearest whole number).
b) The break-even point in units for the proposal by Vendor B = units (round your response to the nearest whole number).
Explanation / Answer
For proposal A
Fixed cost (FC) = $55000
Variable cost (VC) = $13 per unit
Revenue (R) = $24 per unit
For proposal B
Fixed cost(FC) = $80000
Variable cost (VC) = $11 per unit
Revenue (R) = $24 per unit
a) Break even point for proposal A = FC / (R-VC)
= 55000 / (24-13)
= 55000 / 11
= 5000 units
b)Break even point for proposal B = FC / (R - VC)
= 80000 / (24-11)
= 80000 / 13
= 6154 units