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Workshop 1

The document compares the costs and profits of an old and new production process. It shows the revenues, costs, and profits at different production levels. The break-even point for the old process is 400 units and 429 units for the new process. The costs are equal at 500 units of production, where the old process has lower costs below 500 units and the new process has lower costs above 500 units.

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jo lamos
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13 views7 pages

Workshop 1

The document compares the costs and profits of an old and new production process. It shows the revenues, costs, and profits at different production levels. The break-even point for the old process is 400 units and 429 units for the new process. The costs are equal at 500 units of production, where the old process has lower costs below 500 units and the new process has lower costs above 500 units.

Uploaded by

jo lamos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Profit = Revenues - Costs Old Process

Costs = Fixed + Variable Costs Fixed Costs Cost per Unit


Variable Costs = Cost per unit * Number of Units $ 20,000.00 $ 50.00
Revenue = Selling Price * Units Sold
Break-even (in number of units sold)
Break even assumes profit=0 400 Units

Units sold Revenue Total Costs (old) Profit (old) Total Costs (new) Profit (new)
50 $ 5,000 $ 22,500 $ (17,500) $ 31,500 $ (26,500)
100 $ 10,000 $ 25,000 $ (15,000) $ 33,000 $ (23,000)
150 $ 15,000 $ 27,500 $ (12,500) $ 34,500 $ (19,500)
200 $ 20,000 $ 30,000 $ (10,000) $ 36,000 $ (16,000)
250 $ 25,000 $ 32,500 $ (7,500) $ 37,500 $ (12,500)
300 $ 30,000 $ 35,000 $ (5,000) $ 39,000 $ (9,000)
350 $ 35,000 $ 37,500 $ (2,500) $ 40,500 $ (5,500)
400 $ 40,000 $ 40,000 $ - $ 42,000 $ (2,000)
450 $ 45,000 $ 42,500 $ 2,500 $ 43,500 $ 1,500
500 $ 50,000 $ 45,000 $ 5,000 $ 45,000 $ 5,000
550 $ 55,000 $ 47,500 $ 7,500 $ 46,500 $ 8,500
600 $ 60,000 $ 50,000 $ 10,000 $ 48,000 $ 12,000
650 $ 65,000 $ 52,500 $ 12,500 $ 49,500 $ 15,500
700 $ 70,000 $ 55,000 $ 15,000 $ 51,000 $ 19,000
750 $ 75,000 $ 57,500 $ 17,500 $ 52,500 $ 22,500
800 $ 80,000 $ 60,000 $ 20,000 $ 54,000 $ 26,000
850 $ 85,000 $ 62,500 $ 22,500 $ 55,500 $ 29,500
900 $ 90,000 $ 65,000 $ 25,000 $ 57,000 $ 33,000
950 $ 95,000 $ 67,500 $ 27,500 $ 58,500 $ 36,500
1000 $ 100,000 $ 70,000 $ 30,000 $ 60,000 $ 40,000

Comparing processes, at which point of demand do the costs start to deviate (Where costs are equal)

Fixed cost (old) + variable Cost (old) * (X) = Fixed cost (new) + Variable Cost (new) * (X)
Number of Units where both processes have equal total costs
500 Units
New Process
st per Unit Fixed Cost Cost per unit Selling Price
$ 30,000.00 $ 30.00 $ 100.00

umber of units sold) Break-even (in number of units sold)


429 Units

Old Process
$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$-
50
0
0
0

0
0
0
0
0
0
0
0
0

0
0
0
10 0
00
0

0
10

45

95
15
20
25
30
35
40

50
55
60
65
70
75
80
85
90

Revenue Total Costs (old)

Comparing old and n


Where costs are equal)
$70,000

$60,000

$50,000

$40,000

$30,000
Old Process has lower
cost

$20,000
$40,000

$30,000
Old Process has lower
cost

$20,000
50 100 150 200 250 300 350 400 450 500

Total Costs (old)


New Process
$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

$-
50
0
0
0

0
0
0
0
0
0
0
0
10 0
00
0
0
0
0
0
0
55
10
15
20
25
30
35
40
45
50

60
65
70
75
80
85
90
95

Revenue Total Costs (new)

Comparing old and new processes

ocess has lower New Process has lower cost


ocess has lower New Process has lower cost

50 400 450 500 550 600 650 700 750 800 850 900 950 1000

Total Costs (old) Total Costs (new)


900 950 1000

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