[maandpa1227]

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Company “A” and “B” sell an identical product. Company “A” utilizes new and expensive labor saving capital equipment in the manufacturing process. Company “B” instead uses older manufacturing equipment that requires a greater amount of labor in the manufacturing process.
The products sell for the same price per unit.

COMPANY “A” COMPANY “B”
Fixed costs = $ 150,000 Fixed costs = $ 50,000
Variable Costs = $ 150 per unit Variable Costs = $ 250 per unit
Sales price = $ 300 per unit Sales price = $ 300 per unit


COMPUTE the BEP (in units and in sales ) for each firm.
COMPUTE the required level of sales (units/sales) for each company if a $2,000 profit is desired .
COMPUTE the required level of sales (units/sales) for each company if a $10,000 profit is desired

[NeedKarma]

What calculations have you done so far?

[maandpa1227]

Company A
Sales price x units = $45,000 - variable cost x units *(which I don't understand because it is the same figure) - fixed costs = 0
I don't understand the value of X in the next step.

Please help... as math is not a strong area and this seems maybe more complicated that it really is.

[CaptainForest]

Company A

Sales Price 300x
Less Variable Costs 150x
Total = Contribution Margin 150x
Less Fixed Costs 150,000
Total = Net Income or Loss

Therefore,
150 x number of units sold – 150,000 = Net Income/Loss

Since we are asked to find the BE point, we will assume a Net Income/Loss of 0

150x – 150,000 = 0
150x = 150,000
x = 1,000

Therefore for Company A to break even, they must sell 1,000 units or have total sales of $300,000 (1,000 x $300)

Based on how I solved it for Company A, can you try and solve it for Company B?

[maandpa1227]

Yes thank you. I was trying to understand the formula and to equate the units and sales.

Thank you very much. It is much clearer now.

[CaptainForest]

You're welcome