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Break even analysis : Graphical

Draw two break-even graphs-one for a conservative firm using labor-intensive production and another for a capital-intensive firm. Assuming these companies compete within the same industry and have identical sales, explain the impact of changes in sales volume on both firms' profits.
Although no example is provided in the textbook problem, we suggest you use these assumptions to create an Excel line chart (break-even chart).

Labor Capital
Intensive Intensive
Selling price $12.00 $12.00
Variable cost per unit $8.00 $5.00
Fixed costs $250,000 $300,000

Solution
Problem 5-7
Instructions

Complete the tables below for both the Labor Intensive and capital intensive firms.

Labor Intensive Company
Units 0 25,000 50,000 75,000
Total Revenue
Variable costs
Contribution margin
Fixed Costs $250,000
Total Costs
Profit

Capital Intensive Company

Units 0 25,000 50,000 75,000
Total Revenue FORMULA FORMULA FORMULA FORMULA
Variable costs FORMULA FORMULA FORMULA FORMULA
Contribution margin FORMULA FORMULA FORMULA FORMULA
Fixed Costs $300,000 FORMULA FORMULA FORMULA
Total Costs FORMULA FORMULA FORMULA FORMULA
Profit FORMULA FORMULA FORMULA FORMULA

Explain the impact of changes in sales volume on both firms' profits.

Solution Summary

This posting contains BEA of a Labor intensive firm and a capital intensive firm

$2.19