a) What is the break-even point for the manual process (in units)? b) What is the break-even point for the mechanized process (in units)? c) A point of indifference for two processes is quantity at which each process generates the same amount of profit (review video). What is the point of indifference for the two processes? (Hint: 1) Use equations to set profit of manual process equal to mechanized process - and solve for quantity; 2) (Excel) If you have a break-even for each process – have only one cell that represents quantity that be used to calculates costs/revenues for each process and use Goal Seek to calculate quantity that would set the difference to zero). d) Which process would you select if the quantity that is sold is greater than the quantity calculated as the point of indifference? e) Which process would you select in the quantity sold is less than the quantity calculated as the point of indifference?

a) What is the break-even point for the manual process (in units)? b) What is the break-even point for the mechanized process (in units)? c) A point of indifference for two processes is quantity at which each process generates the same amount of profit (review video). What is the point of indifference for the two processes? (Hint: 1) Use equations to set profit of manual process equal to mechanized process - and solve for quantity; 2) (Excel) If you have a break-even for each process – have only one cell that represents quantity that be used to calculates costs/revenues for each process and use Goal Seek to calculate quantity that would set the difference to zero). d) Which process would you select if the quantity that is sold is greater than the quantity calculated as the point of indifference? e) Which process would you select in the quantity sold is less than the quantity calculated as the point of indifference?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Management by Exception

A manager’s job is a very tough one. A manager needs to look at the various areas of work and as a manager he has to look after two or more important jobs or activities at the same time for the growth of the business. In order to do all these things in an effective manner, a manager must adopt or practice different management styles and tactics.

Question

A distributor of fasteners is opening a new plant and considering whether to use a mechanized
process or a manual process to package the product. The manual process will have a fixed cost of
$36,234 and a variable cost of $2.14 per bag. The mechanized process would have a fixed cost of
$84,420 and a variable cost of $1.85 per bag. The company expects to sell each bag of fasteners for
$2.75.
a) What is the break-even point for the manual process (in units)?
b) What is the break-even point for the mechanized process (in units)?
c) A point of indifference for two processes is quantity at which each process generates the same
amount of profit (review video). What is the point of indifference for the two processes?
(Hint: 1) Use equations to set profit of manual process equal to mechanized process and solve
for quantity; 2) (Excel) If you have a break-even for each process - have only one cell that
represents quantity that be used to calculates costs/revenues for each process and use Goal
Seek to calculate quantity that would set the difference to zero).
d) Which process would you select if the quantity that is sold is greater than the quantity calculated
as the point of indifference?
e) Which process would you select in the quantity sold is less than the quantity calculated as the
point of indifference?

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