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1. Marty McDonald has a side business packaging software in Wisconsin. His annual fixed cost is
$10,000, variable cost is $ 8 per unit. The selling price will be $ 12.50 per package. What is the
break-even point in dollars? What is break even in units?
F = $10000
V = $8
P = $12.50
BEP ($) = F/(1 - (V-P)) = $10,000/(1 - ($8 - $12.50)) = $27,777
BEP (x) = F/(P – V) = $10,000/($12.50 - $8) = 2,222 units
2. Smith Cutting is opening a new line of scissors for supermarket distribution. it estimates its fixed
cost to be $500 and its variable cost to be %0.50 per unit. Selling price is expected to average
$0.75 per unit.
a. What is Smithson's break even point in units?
b. What is the break-even point in dollars?
F = $500
V = %0.5
P = $0.75
a. BEP (x) = F/(P – V) = $500/($0.75 - $0.5) = 2000 units
b. BEP ($) = F/(1 - (V – P)) = $500/(1 – ($0.5 - $0.75) = $1,500
3. Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by
adding new equipment. two vendors have presented proposals. The fixed costs for proposal A
are $50,000 and for proposal B $70,000. The variable cost for A is $12 and for B is $ 10. The
revenue generated by each unit is $20
a. What is the break even point in units for proposal A?
b. What is the break even point in units for proposal B?
FA = $50,000
FB = $70,000
VA = $12
VB = $10
P = PA = PB = $20
BEP (xA) = FA/(P – VA) = $50,000/($20 – $12) = 6,250 units
BEP (xB) = FB/(P – VB) = $70,000/($20 - $10) = 7,000 units
4. Given the following data, calculate:
a. BEP in units
b. BEP in dollar
c. Profit at 100,000 units.
Selling price (P) = $8/unit , Variable Cost (V) = $4/unit, Fixed Cost (F) = $50,000
8. Under what conditions would a firm want its capacity to lag demand? to lead demand?