Part 1. Company A makes one product, called alpha. They have fixed costs of $150,000. Each alpha sells for $9, and has $7 per unit in variable costs to produce.

Part 1. Company A makes one product, called alpha. They have fixed costs of $150,000. Each alpha sells for $9, and has $7 per unit in variable costs to produce. Find the operating breakeven quantity for Company A.

Part 2. Using the information from problem 1 above, assume that Company A’s fixed costs increase to $180,000, and the variable costs increase to $7.50 per unit. Find the operating breakeven quantity for Company A.

Expert Solution

1.Contribution margin=Selling price-Variable cost

=(9-7)=$2 per unit

Hence operating breakeven=Fixed cost/Contribution margin

=(150,000/2)

=75,000 units.

2.

New Contribution margin=Selling price-Variable cost

=(9-7.5)=$1.5 per unit

New fixed costs=180,000

Hence operating breakeven=Fixed cost/Contribution margin

=(180,000/1.5)

=120,000 units.

jeff jeffy answered 2 years ago

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