Break-even analysis attempts to determine the volume of sales necessary for a manufacturer to cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and determining the discretionary costs that should be incurred. The general formula for calculating break-even units is: Total Fixed Costs Break-even Units = Unit Selling Price-Unit Variable Cost In StratSim, total fixed costs can be broken into discretionary marketing expenditures, and fixed costs for plant and overhead. The selling price is the MSRP less the dealer discount, and the cost of materials and labor make up the variable cost. In this assignment, you will allocate fixed costs across a portfolio of products and calculate the break-even units for each product. A firm's production capacity is 1.5 million units, with annual fixed costs of $3.2 billion for depreciation, plant maintenance, corporate marketing, and general overhead. Additional values for the three vehicles produced and sold by the firm are shown in the table below: VEHICLE X VEHICLE Y VEHICLE Z MSRP $15,999 $20,999 $25,999 Dealer Discount 10% 12% 15% $11,799 $35 million Variable Cost $13,599 $50 million $16,899 $70 million Adv. & Promo. Prev. Unit Sales 400 thousand 600 thousand 300 thousand
Break-even analysis attempts to determine the volume of sales necessary for a manufacturer to cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and determining the discretionary costs that should be incurred. The general formula for calculating break-even units is: Total Fixed Costs Break-even Units = Unit Selling Price-Unit Variable Cost In StratSim, total fixed costs can be broken into discretionary marketing expenditures, and fixed costs for plant and overhead. The selling price is the MSRP less the dealer discount, and the cost of materials and labor make up the variable cost. In this assignment, you will allocate fixed costs across a portfolio of products and calculate the break-even units for each product. A firm's production capacity is 1.5 million units, with annual fixed costs of $3.2 billion for depreciation, plant maintenance, corporate marketing, and general overhead. Additional values for the three vehicles produced and sold by the firm are shown in the table below: VEHICLE X VEHICLE Y VEHICLE Z MSRP $15,999 $20,999 $25,999 Dealer Discount 10% 12% 15% $11,799 $35 million Variable Cost $13,599 $50 million $16,899 $70 million Adv. & Promo. Prev. Unit Sales 400 thousand 600 thousand 300 thousand
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Calculate the break-even units for each product, showing the intermediate calculations for the allocated fixed costs and selling price (dealer invoice).
Transcribed Image Text:Break-even analysis attempts to determine the volume of sales necessary for a manufacturer to
cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss
potentials, and determining the discretionary costs that should be incurred. The general formula
for calculating break-even units is:
Total Fixed Costs
Break-even Units =
Unit Selling Price-Unit Variable Cost
In StratSim, total fixed costs can be broken into discretionary marketing expenditures, and fixed
costs for plant and overhead. The selling price is the MSRP less the dealer discount, and the cost
of materials and labor make up the variable cost. In this assignment, you will allocate fixed costs
across a portfolio of products and calculate the break-even units for each product.
A firm's production capacity is 1.5 million units, with annual fixed costs of $3.2 billion for
depreciation, plant maintenance, corporate marketing, and general overhead. Additional values
for the three vehicles produced and sold by the firm are shown in the table below:
VEHICLE X
VEHICLE Y
VEHICLE Z
MSRP
$15,999
$20,999
$25,999
Dealer Discount
10%
12%
15%
$11,799
$35 million
$13,599
$50 million
$16,899
$70 million
Variable Cost
Adv. & Promo.
Prev. Unit Sales
400 thousand
600 thousand
300 thousand
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