Question

A company has two options for manufacturing boots. The manual process has monthly fixed costs of $26,380 and variable costs of $5.16 per pair of boots and an automated process with fixed costs of $52,239 per month and variable costs of $2.09 per pair of boots. They expect to sell each pair of boots for $99. What is the monthly break-even quantity (number of units) for the manual process

Answer 1

Answer:

Break-even point for the manual process= 281.11 unit

Explanation:

Break-even point is the level of activity at which a firm must operate such that its total revenue will equal its total costs. At this point, the company makes no profit or loss because the total contribution exactly equals the total fixed costs.

Break even point in units is calculated using this formula:  

Break even point in units = Total general fixed cost/ (selling price - Variable cost)

Break-even point for the manual process:

Break-even point in units = $26,380/(99- 5.16) = 281.11 units

Break-even point for the manual process= 281.11 units