Answer:
(A) Oven A 2,631.57 units
Oven B 3,095.24 units
(B) Oven A $60,500
Oven B $62,000
Explanation:
(a) The formula to compute the break even point is shown below:
= (Fixed expenses ) ÷ (Contribution margin per unit)
where,
Contribution margin per unit = Selling price per unit - Variable expense per unit
So For Oven A, the break even point would be
= ($25,000) ÷ ($12 - $2.5)
= $25,000 ÷ $9.5
= 2,631.57 units
And For Oven B, the break even point would be
= ($32,500) ÷ ($12 - $1.5)
= $32,500 ÷ $10.5
= 3,095.24 units
(B) In this part, we have to compute the net income or net loss which is shown below:
We know that,
The net income would be = Contribution margin per unit × number of units - fixed cost
So For Oven A, the net income would be
= ($9.5 × 9,000 units) - $25,000
= $85,500 - $25,000
= $60,500
And For Oven B, the net income would be
= ($10.5 × 9,000 units) - $32,500
= $94,500 - $32,500
= $62,000
The oven B should be purchased as it have high net income than oven A
