Question

Please write a paragraph or two for each question:

You are working as a graduate within the engineering department of a manufacturing and consulting focused public listed company. You and your team are working on the post-COVID recovery and how best to allocate capital. Your team has $1,000,000 in capital at their disposal.

The accountants are expected to use terms which may not be fully understood by the greater department. So your memo will be distributed before the call or you may be asked to speak on the call to assist everyone's understanding. The memo should discuss each of the following:

1. A new product line is also being proposed and it is expected that the accountants will discuss this option. Explain the difference between fixed and variable costs and state at least three examples of each that the company may incur.

2. Some employees have raised their concern that the new product line will not be profitable and that it will cost more to produce the new product than will be made. Explain the break even point with particular focus on why a break even point is not immediate but rather is reached over time.

Answer 1

Answer)

1. When we talk about fixed costs,we talk about costs which do not change with or depend on amount of production being done and can be one time or are paid at a particular time,while when we talk about variable costs,we talk about costs which depend on amount of production,no. of units being produced,which varies on the basis of amount of production and is paid everytime production is being done.Three examples of fixed cost in this case would be rent of factory,cost of machines,salaries of managers while 3 examples of variable costs in this case will be raw materials for production,packaging material cost and cost of inspecting each product for defects.
2. Break even point is the point where there is no loss no profit,that is it is the point where total revenue is equal to total cost,when we talk about break even point it takes time to achieve as fixed costs are absorbed over a period as well as learning curve is developed(that is learning lets company reduce costs) thereby company achieves economies of scale and break even point is achieved after a period.

Answer is complete.Thank you!