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Break-even and Other CVP Analysis

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Business, Project Management - Year 4

u02a1 Break Even Analysis (Attempt 1 )

I. u02a1 Break Even Analysis (Attempt 1 )

1. Problem 4: Slick Pads is a company that manufactures laptop notebook computers. It likes to add its own line of computers printers as well. It has also considered the implications from the marketing and financial perspectives and estimates fixed costs to be $500,000. Variable costs are estimated at $200 per unit produced and sold.

a) If the company plans to offer the new printers at a price of $350, how many printers does it have to sell to break even ?
b) Describe the types of operations considerations that the company needs to consider before making the final decision ?
For help on how to complete these problems, see the Solved Problems on pages 91-93. When completed, submit your answers as an attachment in the assignment area. Be sure to include your work with the answer.

2. Problem 8: George Fine, owner of Fine Manufacturing, is considering the introduction of a new product line. George has considered factors such as costs of raw materilas, new equipment, and requirements of a new production process. He estimates that the variable costs of each unit produced would be $ 8 and fixed costs would be $ 70,000.

a) If the selling price set at $ 20 each, how many units have to be produced and sold for Fine Manufacturing to break even? Use both graphical and algebraic approaches.
b) If the selling price of the product is set at $ 18 per unit, Fine Manufacturing expects to sell 15,000 units. What would be the total contribution to profit from this product at this price?
c) Fine Manufacturing estimates that if it offers the product at the original target price of $ 20 per unit, the company will sell about 12,000 units. Which pricing strategy - $ 18 per unit or $ 20 per unit - will yield a higher contribution to profit ?
d) Identify additional factors that George Fine should consider in deciding whether to produce and sell the new product.

+ Answers all components of the problem.
+ Solves the problem correctly.
+ Provides in-depth summary and interpretation of the results.

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Solution Summary

This solution illustrates how to perform various cost-volume-profit analyses.

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