Madonna’s Burgers is considering making hamburger buns in-house instead of buying them from its supplier. It has estimated the fixed costs for a used over to be $7,000 and the variable costs for the buns to be $0.25. It purchases buns for $0.50 each, and there are no fixed purchase costs. Its annual demand for buns is forecasted to be 15,000. Madonna’s wants to know how many buns it has to make to break even.
Madonna’s Burgers is considering making hamburger buns in-house instead of buying them from its supplier. It has estimated the fixed costs for a used over to be $7,000 and the variable costs for the buns to be $0.25. It purchases buns for $0.50 each, and there are no fixed purchase costs. Its annual demand for buns is
This question is related to the topic-Break even method and this topic fall under the operations management syllabus.
From the question, I could see that estimated fixed costs =7000 and variable costs per unit =0.25, purchase costs or selling price for one unit=0.50
Based on the above data, I would calculate the break-even quantity. These calculations are shown in the next step.
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