Question

Louie is considering two different manufacturing processes. One is more capital intensive with fixed costs of​ $150,000 and variable costs of​ $50 per unit. The other is less capital intensive with fixed costs of​ $75,000 and variable costs of​ $100 per unit. What is the​ break-even quantity at which the total costs for both processes are​ equal?

Answer 1

Answer:

$1,500

Explanation:

Formula for break-even is

Break even= Fixed cost/(Revenue per unit - Variable cost)

For the first process

Break-even(1)= 150,000/(x-50)

For second process

Break-even (2)= 75,000/(x-100)

Equate both

Break-even (1)= Break-even (2)

150,000/(x-50)= 75,000/(x-100)

Cross-multiply

150,000(x-100)= 75,000(x-50)

150,000x - 15,000,000= 75,000x - 3,750,000

150,000x - 75,000x= 15,000,000- 3,750,000

75,000x= 11,250,000

x= 11,250,000/75,000

x= 150

Substitute x in

Break-even= 75,000/(x-100)

= 75,000/(150-100)

= 75,000/50= $1,500