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    KORIE1404's Avatar
    KORIE1404 Posts: 3, Reputation: 1
    New Member
     
    #1

    Oct 4, 2012, 02:18 PM
    how to compute the break-even point in sales dollars
    For nearly 20 years Custom Coatings has provided painting and galvanizing
    services for manufacturers in its region. Manufacturers of various metal products have
    relied on the quality and quick turnaround time provided by Custom Coatings and its 20
    skilled employees. During the last year, as a result of a sharp upturn in the economy, the
    company’s sales have increased by 30% relative to the previous year. The company has not
    been able to increase its capacity fast enough, so Custom Coatings has had to turn work
    away because it cannot keep up with customer requests.
    Top management is considering the purchase of a sophisticated robotic painting booth. The
    booth would represent a considerable move in the direction of automation versus manual
    labor. If Custom Coatings purchases the booth, it would most likely lay off 15 of its skilled
    painters. To analyze the decision, the company compiled production information from the
    most recent year and then prepared a parallel compilation assuming that the company
    would purchase the new equipment and lay off the workers. Those data are shown below.
    As you can see, the company projects that during the last year it would have been far more
    profitable if it had used the automated approach.

    Current Approach Automated Approach
    Sales $2,000,000 $2,000,000
    Variable costs 1,200,000 400,000
    Contribution margin 800,000 1,600,000
    Fixed costs 200,000 600,000
    Net income $ 600,000 $1,000,000


    QUESTION: . Compute the break-even point in sales dollars under each approach. Discuss the
    implications of your findings.
    Curlyben's Avatar
    Curlyben Posts: 18,514, Reputation: 1860
    BossMan
     
    #2

    Oct 4, 2012, 02:21 PM
    What do YOU think ?
    While we're happy to HELP we won't do all the work for you.
    Show us what you have done and where you are having problems..
    KORIE1404's Avatar
    KORIE1404 Posts: 3, Reputation: 1
    New Member
     
    #3

    Oct 4, 2012, 02:27 PM
    Quote Originally Posted by Curlyben View Post
    What do YOU think ?
    While we're happy to HELP we wont do all the work for you.
    Show us what you have done and where you are having problems..
    Thank you!

    I got $40,000 for current approach

    FC/(1-VC/S)

    (1-1,200,000/2,000,000)

    2,000,000/0.4

    = $5,000,000 BEP

    and automated approach = $750,000
    KORIE1404's Avatar
    KORIE1404 Posts: 3, Reputation: 1
    New Member
     
    #4

    Oct 4, 2012, 02:28 PM
    Thank you! I did the formula of Fixed costs / (1- variable cost/sales)

    I got $5,000,000 for current approach

    FC/(1-VC/S)

    (1-1,200,000/2,000,000)

    2,000,000/0.4

    = $5,000,000 BEP

    and automated approach = $750,000

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