Question

A computer rework center has the capacity to rework 300 computers per day. The expected number of computers needing to be reworked per day is 225. The center is paid $26 for each computer reworked. The fixed cost of renting the reworking equipment is $250 per day. Work space rents for $150 per day. The cost of material is $18 per computer and labor costs $3 per computer. What is the break-even number of computers reworked per day

Answer 1

Answer: 80 computers per day

Explanation:

In calculating the break-even point, it important to consider two types of costs. There are fixed costs, costs that don´t change no matter what happens with demand (in this case computers to be fixed), and variable costs, that varies depending on the demand.

Fixed costs:

Equipment Rent: 250

Space Rent: 150

Variable Costs:

Material per computer: 18

Labor per computer: 3

We have to pay $400 no matter what, and more depending on how many pcs are fixed. Now it’s a matter of calculating how many pcs are necessary to pay for that fixed costs and the variable costs that will come with it.

If there were no variable costs, the break-even point would be 16 pcs [16*26=416] (a little more than 15 but u can’t fix half of a pc lol).

However, knowing that the cost per pc is $21, we realize that we earn only $5 per pc. And how many $5 there are in $400? 80 pcs!

Phew! Let’s recap:

80 pcs fixed: $2080 revenue

Variable Cost: 21*80 = $1680

Fixed Cost: $400

2080 – 1680 – 400 = 0. Break-even!

As a side note: in this case, the center capacity is irrelevant because we can break-even well beneath the limit. However, in order to maximize profits, it would be a important data to work with.