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Break Even Analysis

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Gateway Appliance toasters sell for $20 per unit, and the variable cost to produce them is $15. Gateway estimates that the fixed costs are $80,000. Compute the break-even point in units. After solving this problem, discuss the relative merits of Net Present Value analysis versus Breakeven analysis.

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Solution Summary

Break Even Analysis for a Toaster Line at an appliance company

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First, compute the contribution margin of each unit sold:

Income $20
Variable Expense ($15)

Contribution Margin $5

In other words, each unit will yield $5 in gross income that can, then, be applied toward fixed ...

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