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Break Even Point for Production

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The Gregory's Pie Company is facing a capacity dilemma in that the current capacity is at its limits, but at the same time, capital investment in a new line is high and, additionally, a new line might lead to a situation of over capacity.

The fixed cost of investment is estimated at 600.000 Euros for a capacity of 150.000 pies per month, and 1.000.000 Euros for a capacity of 300.000 pies per month.

Variable cost is 2.00 Euros per pie for a quantity up to 150.000 pies per month and 1.50 Euros per pie for a production of 150.00 to 300.000 per month. Pies are sold in the market for 7 Euros per item.

Current demand is 120.000 pies per month. There is an opportunity to take on production for another brand (which searches for outsourcing partners) of an additional 50.000 pies per month.

1. Compute the break-even quantity for production below and above 150.000 pies.
2. What do you advise management to do?

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Solution Preview

1.
Break Even quantity for production below 150,000

7*x = 2*x + 600,000
=> 5*x = 600,000
=> x = 120,000

Break Even quantity for ...

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Allison Radios Break-even Point: dollar sales volume,units of output, operating leverage

In Excel format:

(Break-even point) You are a hard-working analyst in the office of financial operations for a manufacturing firm that produces a single product. You have developed the following cost structure information for this company. All of it pertains to an output level of 10 million units. Using this information, find the break-even point in units of output for the firm.

Return on operating assets = 25%
Operating asset turnover = 5 times
Operating assets = $20 million
Degree of operating leverage = 4 times

(Break-even point and operating leverage) Allison Radios manufactures a complete line of radio and communication equipment for law enforcement agencies. The average selling price of its finished product is $180 per unit. The variable cost for these same units is $126. Allison Radios incurs fixed costs of $540,000 per year.

1. What is the break-even point in units for the company?
2. What is the dollar sales volume the firm must achieve in order to reach the break-even point?
3. What would be the firm's profit or loss at the following units of production sold: 12,000 units? 15,000 units? 20,000 units?
4. Find the degree of operating leverage for the production and sales levels given in part (c).

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