Complete the analysis for the case study \"Break-Even Analysis at SportsExchange

Question

Complete the analysis for the case study "Break-Even Analysis at SportsExchange" on page 92. (edited question: spreadsheet modeling for business decisions by john f. kros. Edition: 5)

Break-Even Analysis at SportsExchange Facility Comparison at SportsExchange SportsExchange is a regional refurbisher of sporting goods equipment.It specializes in upgrad- ing football equipment that it receives from high schools and colleges. Processes used by Sports Exchange include sewing pants and jerseys, replacing pads, repairing and painting hel mets, and replacing laces, snaps, and elastic in pants The most expensive process for SportsExchange is painting helmets. Regulations that con- trol worker safety and environmental emissions mandate a paint room that manages fumes effectively. In order to continue in its lucrative business, SportsExchange is required to invest in a new state-of-the-art painting facility. SportsExchange has identified three manufacturers of turnkey spray booths. The fixed and variable costs associated with each of the three alternatives are presented in Table 1 below ? TABLE 1: COSTS ASSOCIATED WITH SPORTSEXCHANGE'S THREE PAINTING ALTERNATIVES Alternative A: Enviro-Spray B: Spray Center C: Crystal Coat Fixed cost $500,000 $207,500 $265,000 Variable cost $0.148 $1.321 $0.910 Analysis Sport sExchange believes it will need to refinish 200,000 helmets. What is the total cost for each the alternatives for refinishing that quantity of helmets? Which alternative appears to be the best choice (i.e., lowest total cost)? What alternative appears to the best choice if quantity to refinish increases to 320,000 helmets? costs associated with the Spra helme he cost accountants at SportsExchange may have made an error in calculating the fixed y Center alternative. They now believe that the fixed costs for the y Center alternative should be $150,000. If SportsExchange expects to refinish 200,000 ts, which alternative looks the best now? What happens to the relative attractiveness df the Crystal Coat alternative as Spray Center's fixed costs decrease to $150,000? In addition, the cost accountants have revealed that their estimate for able cost may know how sensitiv costs. Give the cost accountants some assistance here by increasing Crystal Coa costs and describe the changes that occur relative to the other alternatives Crystal Coat's vari- be too low. However, they don't know how by much they are off and would like to e Crystal Coat is to changes in variable costs, specifically increases in variable variable 8 t's

Explanation / Answer

1. If sports exchange refinishes 200000 helmets

Variable Cost

29600

(200000 * 0.148)

264200

(200000 * 1.321)

182000

(200000 * 0.910)

# Therefore, for 200000 helmets being refinished, alternative C that is Crystal Coat is best as it has the lowest cost

2. If Sports Exchange refinishes 320000 helmets

Variable Cost

47360

(320000 * 0.148)

422720

(320000 * 1.321)

291200

(320000 * 0.910)

# Therefore if Sports Exchange wishes to refinish 320000 helmets then Alternative A (Enviro Spray) is best as it has the lowest cost.

3. If Fixed Costs for Spray Center is $150000 and Sports Center refinishes 200000 Helmets

Variable Cost

29600

(200000 * 0.148)

264200

(200000 * 1.321)

182000

(200000 * 0.910)

# Hence, in this case Alternative B ( Spray Center) is best as it has the lowest cost.

Also, Alternative C (Crystal Coat) does not attract now because the break even point between Alternative B & C is 279806 Helmets

F.C.1 + V.C.1*x = F.C.2 + V.C.2*x

265000 + 0.910x = 207500 + 1.321x

115000 = 0.411x

Therefore x = 279806 Helmets (Approx)

which means that if Sports Exchange wishes to refinish less than 279806 helmets then Alternative B (Spray Center) would be attractive otherwise Alternative C subject to Break even point between Alternative A & C which is 308399 Helmets.

4. Increase in Variable Cost of Crystal Coat:

And in such a case also Alternative B would remain attractive for approx. 286141 (that is BEP between Alternative B & C) helmets getting refinished. After that alternative C would be attractive upto approx.304760 (that is BEP between Alternative A & C) Helmets

And in such a case also Alternative B would remain attractive for approx. 292770 (that is BEP between Alternative B & C) helmets getting refinished. After that alternative C would be attractive upto approx.301205 (that is BEP between Alternative A & C) Helmets

Particulars A - Enviro-Spray B - Spray Center C - Crystal Coat

Variable Cost

29600

(200000 * 0.148)

264200

(200000 * 1.321)

182000

(200000 * 0.910)

Fixed Cost 500000 207500 265000 Total Cost 529600 471700 447000#

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