Cruces Manufacturing Inc. is making two products A and B at its plant location i
ID: 1221727 • Letter: C
Question
Cruces Manufacturing Inc. is making two products A and B at its plant location in Las Cruces. NM. The cost data for the two products are in the table below. Assuming the number of product A is equal to 3 times the number of product B. determine the breakeven in $. If the company made 4.500 units of A and 1.500 units of B respectively during the last quarter, what is the profit made? Assume this quarter the company is planning on making only product A. what would be the breakeven volume in number of units of A? Assume this quarter the company is planning on making only product B and the fixed cost has increased from $30,000 to $40,000. what would be the breakeven volume in number of units of B?Explanation / Answer
Case(a): Assumption-Product A is equal to three times number of product B, A=3B
To find the break even quantity, we need to consider three parameters, namely Fixed cost, selling price and variable cost. So the break even quantity would be,
product A break even quantity= Fixed cost/(Selling price-Variable cost)
=120000/(60-30)
=4000
As we have assumed earlier, A=3B. Cruces manufacturing needs to produce 4000 units of product A and 12000 units of product B.
Case(b): considering the output 4500 units of product A and 1500 units of products B.
Profit for product A: [quantity produced * (selling price - variable cost)] - Fixed cost
=[4500 * (60-30)] - 30000
=$ 105000
similarly product B: [quantity produced * (selling price - variable cost)] - Fixed cost
=[1500 * (50-25)] - 30000
=$ 7500
So these products would earn profits of $105000 and $7500, respectively
case(c): Breakeven volume for product A
product A break even quantity= Fixed cost/(Selling price-Variable cost)
=30000/(60-30)
=1000
For this quarter, Cruces manufacturing has to produce 1000 units of product A alone.
case(d): product B in this quarter with increased fixed cost
product B break even quantity= Fixed cost/(Selling price-Variable cost)
=40000/(50-25)
=1600
So, Cruces manufacturing has to produce 1600 units of product B with increased fixed cost to break even.
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