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Break-even chart Break-even volume

Peter, a president of a company produces power transformers for personal computer manufacturers. Peter's choice of the various methods by which a new model of transformer can be built has been narrowed to 3 choices. He estimates the product life of the transformer to be one year. Marketing has estimated that it can sell 5,000 of these new transformers within the time period. The 3 alternatives are:

1. Use existing equipment and fixtures, and hire high
-skilled machinists and technicians at $16.00 per hour (including benefits). With this method, each transformer will require 2 labor hours to assemble.

2. Use existing equipment, but invest $30,000 in new fixtures and instruction manuals to simplify some of the more complicated operations. Semiskilled workers can be employed at $12.00 per hour (including benefits), with each transformer requiring 1 labor hour to complete.

3. Invest $75,000 in new equipment, fixtures, and instruction manuals. This approach would eliminate all of the complicated procedures, thereby requiring only unskilled labor, which could be hired for $6.00 an hour (including benefits). With this method, each transformer would require 20 labor minutes to complete.

These are the questions that I am completely lost on. I have to do this in Excel.

A. Make a break-even chart using total cost versus volume for the above processes.

B. Calculate the 2 break-even volumes (i.e., those volumes at which you shift from one process to another).

C. Which alternatives would choose and why?

Solution Summary

This posting provides details on calculating break-even volume and preparing break-even chart.