Markland Manufacturing intends to increase capacity by overcoming a bottleneck o
ID: 461824 • 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 $60, 000 for proposal A and $80, 000 for proposal B. The variable cost is $13.00 for A and $10.00 for B. The revenue generated by each unit is $20.00. a) The break-even point in units for the proposal by Vendor A = 8572 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
The breakeven point is the production level where total revenues equal’s total expenses.
BEP = Fixed cost/contribution per unit
Vendor A
BEP = 60000/ (20-13)
= 60000/7 = 8572 units.
Vendor B
BEP = 80000/ (20-10)
= 80000/10 = 8000units.
Note : Contribution per unit = selling price – variable cost.