has a target debt−equity ratio of 1.35. Its WACC is 8.3 percent, and the tax rate is 35 percent. If the company’s cost of equity
1 answer:
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Answer:
a. 19 units
b. $56,452
c. Facility B shall be chosen.
Explanation:
As for the provided information,
We have
Costs under facility A
Cost per generator = $1,300
Setting up cost = $22,500
Number of generators = 20
Costs under facility B
Cost per generator = $950
Fixed cost = $35,000
Number of generators = 42
Selling price of generator = $2,500
a. Break even point for Type A, in units
=
Fixed cost = $22,500
Contribution per generator = $2,500 - $1,300(Variable cost) = $1,200
Break even point in units =
since units can not be in decimals, it will be 19 units.
b. For type B contribution margin in percentage shall be:
Selling price - variable cost = $2,500 - $950 = $1,550
Contribution margin = 1,550/2,500 = 62%
Break even in dollars = $35,000/62% = $56,451.61
c. If facility Q has fixed cost = $40,000
and unit cost = $800
contribution = $2,500 - $800 = $1,700
Thus, break even in units = $40,000/1,700 = 23.5 = 24 units
As the break even for facility b = $35,000/1,550 = 22.58 = 23 units
Thus, since facility B has least break even the facility B shall be chosen, as for facility A the break even is low but profit will not be there as maximum capacity is 20 units.