A manufacturer plans to introduce a new type of shirt based on the following information. The selling price is $57.00; variable
cost per unit is $18.00; fixed costs are $7800.00; and capacity per period is 500 units. a) Calculate the break-even point (i) in units (ii) in dollars (iii) as a percent of capacity b) Draw a detailed break-even chart. c) Calculate the break-even point (in units) if fixed costs are reduced to $7020.00 d) Calculate the break-even point (in dollars) if the selling price is increased to $78.00
Let the break even point in units be x, 57x = 18x + 7800 57x - 18x = 7800 39x = 7800 x = 7800/39 = 200
Thus break-even point in units is 200 units. The break-even point in dollars is 57 x 200 = $11,400 Break-even point as a percent of capacity is 200 / 500 x 100 = 40%
c.) 57x = 18x + 7020 39x = 7020 x = 7020 / 39 = 180 Thus when fixed cost is reduced to $7020, the break-even point is $180.
78x = 18x + 7800 78x - 18x = 7800 60x = 7800 x = 130 Thus, when sellingprice is increased to $78 the break-even point in dollars is 78 x 130 = $10,140
