Question

Stew's Plastics produces a variety of CD cases. The best-selling product is the CD-50. Several products are produced on the same manufacturing line, so there is a setup cost each time a changeover is made for a new product. The setup cost for the CD-50 is $3200. In addition, it costs $1.82 for each unit (CD Case) produced, and for each 100 CD Cases they have to put them in a box that costs $2.50. If there is less than 100 CD Cases they will put them in a box (in other words, if they had 102 CD Cases, they would do 2 boxes, one with 100 CD Cases and one with 2 CD Cases) What is the break-even point (in terms of number of CD cases) if they sell them for $5.75 each? Q2 (5 points)

Answer 1

The break-even point is the point at which the total revenue is equal to the total cost.

Here one box contains 100CD-50s. the box occupy more than 100.

cost per CD-50 = $1.82, cost of box = $2.5 per boxes, set up cost = $3200. Selling price = $5.75 per unit

Break-even units = Fixed cost / Contribution or profit per unit.

here CD-50s are in a packet so we have to identify the range of CD-50s for Break-even, for this semi variable costs are to be considered as variable costs so contribution or profit per CD-50 = 5.75-7.82-(2.5/100) = $3.905. the range = $3200/3.905 = 819.46 CD-50s i.e. 9 boxes are to be used, then

actual Break-even units = total Fixed costs / Contribution or profit per unit. here the cost of boxes are to be considered as fixed costs. So cotribution or profit per unit will be 5.75-1.82 = 3.93. setup cost = $3200, cost of boxes = 9 x 2.5 = 22.5, total fixed cost = 3222.5 / 3.93= 819.975 units i.e. 820 units we can cross check it.

Sales $s = 5.75 x 820	4715
Cost direct = 1.82 x 820	1492
cost of boxes = 2.5 x 9	23
set up cost	3200
Total Cost	4715