Music players are produced on an automated assembly-line process.

The
variable cost of players is $150 per unit and the sales price is $ 300 per
unit. The fixed cost is $7500.
Determine the breakeven point of sales.

Fixed cost 7500 Quantity Total cost Revenue

Variable cost 150 0 7500 0
Sales price 300 10 9000 3000
20 10500 6000
Breakeven point of sales 50 Answer 30 12000 9000
40 13500 12000
50 15000 15000
60 16500 18000
70 18000 21000
80 19500 24000
90 21000 27000
cess. The
300 per

Chart Title
30000

25000

20000

15000

10000

5000

0
0 10 20 30 40 50 60 70 80 90 100
Tota l cost Revenue
0 80 90 100
Keith Whitt, as manager of Designs by Whitt is upgrading his CAD software. The high performa
software costs $3,000 per workstation and the standard performance (SP) software costs $2,0
workstation. The HP software is faster for his kind of design. Therefore, with the HP software h
five engineers and with the SP soft-ware he will need six. This translates into a variable cost of
drawing for the HP system and $240 per drawing for the SP system. At his projected volume of
per month, which system should he rent? What is the breakeven volume of drawings?

CAD System Fixed cost Variable cost Total cost for 80 drawings
HP 3000 200 16000
LP 2000 240 19200 30000

Drawings per month 80

Recommendation Go for HP
Break even volume -25 25000

Total cost
No. of drawings per 20000
HP SP
month
5 4000 3200
10 5000 4400 15000
15 6000 5600
20 7000 6800
25 8000 8000
30 9000 9200 10000
35 10000 10400
40 11000 11600
45 12000 12800 5000
50 13000 14000
55 14000 15200
60 15000 16400
0
65 16000 17600 0 10 20
70 17000 18800
75 18000 20000
80 19000 21200
85 20000 22400
90 21000 23600
95 22000 24800
 tware. The high performance (HP)
(SP) software costs $2,000 per
e, with the HP software he will need
es into a variable cost of $200 per
At his projected volume of 80 drawings
me of drawings?

Chart Title

10 20 30 40 50 60 70 80 90 100

HP SP
90 100
 Atlantic Enterprises wants to decide between making a component in-house or bu
production requires an investment of $160,000 and a variable cost of $60. The ve
the annual requirement is 12000 units, what do you suggest, make or buy? If the
what range the two options would be considered?

Making in house Buying from vendor

Investment, $ 160000
Variable cost, $ 60
Purchase price, $ 80
Annual requirement 12000 12000

Total cost 880000 960000

Break even point 8000

Decision
 nent in-house or buying from a vendor. In-house
cost of $60. The vendor has asked a price of $80. If
make or buy? If the volume is likely to change, over

Chart Title
1400000

1200000
Total cost
Quantity Making in house Buying from vendor 1000000
1000 220000 80000
800000
2000 280000 160000
3000 340000 240000 600000
4000 400000 320000 400000
5000 460000 400000
6000 520000 480000 200000
7000 580000 560000 0
8000 640000 640000 0 2000 4000 6000 8000 10000 12000
9000 700000 720000 Ma king i n hous e Buyi ng from vendor
10000 760000 800000
11000 820000 880000
12000 880000 960000
13000 940000 1040000
14000 1000000 1120000
15000 1060000 1200000
hart Title

8000 10000 12000 14000 16000

us e Buyi ng from vendor
 Barclays Office is planning to lease a printing machine for their office which has a monthly
printing of 12500 black and white copies.
Two machines are under consideration: Print Shop W1 which has a fixed cost of $ 2000
per month and a variable cost of $ 0.3. The other machine Print Shop W2 will cost $ 1500
per month with a variable cost of $ 0.4. If cost and volume are the only considerations
which machine should Barclays choose? At what volume of copies, both the machines
would have same total cost?

Print Shop W1 Print Shop W2

Fixed cost, $ 2000 1500
8000
Variable cost, $ 0.3 0.4
Monthly volume 12500 12500
Total cost, $ 5750 6500
Recommendation Print Shop W1 7000

Break even volume,

5000 6000
units

Quantity Total cost, W1 Total cost, W2

1000 2300 1900 5000
2000 2600 2300
3000 2900 2700
4000 3200 3100 4000
5000 3500 3500
6000 3800 3900
7000 4100 4300 3000
8000 4400 4700
9000 4700 5100
10000 5000 5500 2000
11000 5300 5900
12000 5600 6300
13000 5900 6700 1000
14000 6200 7100
15000 6500 7500
0
0 2000
ffice which has a monthly

s a fixed cost of $ 2000

Shop W2 will cost $ 1500
e only considerations
es, both the machines

Chart Title
8000

7000

6000

5000

4000

3000

2000

1000

0
0 2000 4000 6000 8000 10000 12000 14000 16000

Tota l cost, W1 Tota l cost, W2

4000 16000
Stan Fawcett’s company is considering producing a gear assembly that it now
purchases from Salt Lake Supply, Inc. Salt Lake Supply charges $4 per unit with a
minimum order of 3,000 units. Stan estimates that it will cost $15,000 to set up the
process and then $2 per unit for labor and materials.
Draw a graph illustrating the crossover (or indifference) point.
Determine the number of units where either choice has the same cost.

In house Buy
40000
Fixed cost 15000 Break even
Variable cost 2 4 7500
35000
Total cost
Units Make In house Buy 30000
1000 17000 4000
1500 18000 6000
25000
2000 19000 8000
2500 20000 10000
3000 21000 12000 20000
3500 22000 14000
4000 23000 16000 15000
4500 24000 18000
5000 25000 20000
5500 26000 22000 10000
6000 27000 24000
6500 28000 26000 5000
7000 29000 28000
7500 30000 30000
0
8000 31000 32000 0 1000 2000
8500 32000 34000
9000 33000 36000
 that it now
per unit with a
00 to set up the

ost.

Chart Title
40000

35000

30000

25000

20000

15000

10000

5000

0
0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

Make In house Buy

 Bobs International is re-evaluating the design, cost and profitability of its line of office accessor
constructed of metal-based parts for durable and consistent performance. At the time of the init
drawing process was also the most economical. Management now suspects that the cost adva
highly dependent on the volume of parts produced. To confirm their suspicion management wo
break-even volume for one of its products, the 3-hole punch, when fabricated from metal versu
be made based on the individual break-even points of each process?
Metal Drawing Process Plastic Injection Molding
Fixed cost $ 50,000 $160,000
Variable cost $ 5 per unit $ 3 per unit
Selling price $10 per unit $10 per unit

Management wants more specific information regarding the volume at which the 3-hole punch
metal parts or from plastic parts. Management is also considering subcontracting out the produ
unit. Which alternative would you recommend?

Choice 1 Choice 2 Choice 3

Metal Drawing Plastic Injection

Subcontract
Process Molding

Fixed cost, $ 50,000 160,000

Variable cost per unit, $ 5 3 8 This is purchase price
Selling price per unit, $ 10 10

Break even point, Units

Choice 1 Vs 2 55000
Choice 1 Vs 3 16666.6666667
Choice 2 Vs 3 32000

Total cost, $

Metal Drawing Plastic Injection

Units Subcontract
Process Molding
5000 75000 175000 40000
10000 100000 190000 80000
15000 125000 205000 120000
20000 150000 220000 160000
25000 175000 235000 200000
30000 200000 250000 240000
35000 225000 265000 280000
40000 250000 280000 320000
45000 275000 295000 360000
50000 300000 310000 400000
55000 325000 325000 440000
60000 350000 340000 480000
65000 375000 355000 520000
70000 400000 370000 560000
75000 425000 385000 600000
80000 450000 400000 640000
85000 475000 415000 680000
s line of office accessories. Currently, the items are
e. At the time of the initial process decision, the metal
pects that the cost advantage enjoyed by metal parts is
picion management would like you to compare the
cated from metal versus plastic. What decision can

which the 3-hole punch should be constructed from

ontracting out the production of the parts for $8 per

This is purchase price

Chart Title
800000

700000

600000

500000

400000

300000

200000
400000

300000

200000

100000

0
0 10000 20000 30000 40000 50000 60000 70000 80000 9000

Meta l Drawi ng Proces s Pl astic Injection Mol di ng Subcontract

70000 80000 90000

ontract