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bakerwi · Jul 17, 2010, 04:54 PM

I just calculated the break-even point for both units and dollars for 2 separate proposals (A & B). How would I calculate the units of output that would yield the same profit for both proposals? The break-even dollars for proposal A & B were $125, 000 and $140,000, respectively and the break-even units were 6,250 and 7,000, respectively. The unit contribution margin for A is $8.00 and B is $10.00.

morgaine300 · Jul 18, 2010, 05:45 AM

Hmm, good question. I'd have to think upon it and I suspect I could do it with some algebra. Does the book have examples, and if so, are they using algebra? Because I'm not aware of any specific accounting formula with which to do that. (I would just have to think it through.)

ArcSine · Jul 19, 2010, 07:33 AM

I'll chip in with an agreement that there's probably not a canned formula--at least not that I've seen. But you could knock it out algebraically, as Morgaine suggested.

(Caveat: This is predicated on an assumption that everything's behaving linearly here.) The given info immediately reveals that A's fixed costs are 50K, and B's are 70K.

From that you can derive the two profit functions, with profit p as a function of units produced q:

A) p = 8q - 50,000
B) p = 10q - 70,000

Then finally, A and B would have an equal expected profit when

8q - 50,000 = 10q - 70,000

Solve for q, then be sure to drop your proposed solution back into both of the two profit functions above to verify that the same profit amount falls out.