Your cost in a product is $80 per unit. Sales would like to sell the product for
ID: 2462093 • Letter: Y
Question
Your cost in a product is $80 per unit. Sales would like to sell the product for $ 100.00 per unit. What is the percent markup based on cost? Your company is considering two alternative building sites to produce two different products. The following details are relevant: Using Breakeven Analysis, determine the breakeven point in units and dollars for each alternative. Assuming it takes the same amount of time to produce product at both alternatives, which alternative will be the first to achieve profitability?Explanation / Answer
(1) Mark-up (%) = (Selling price - Cost) / Cost = $(100 - 80) / $80 = $20 / $80 = 0.25, or 25%
(2)
(a)
Total fixed cost = Building lease + property tax + Equipment
Total variable cost = Material cost + Labor cost
Breakeven point (BEP) (Units) = Fixed cost / (Selling price - Unit variable cost)
BEP ($) = Fixed cost / [Selling price - Unit variable costs) / Selling price]
(i) Alternative A
BEP (Units) = $(8,000 + 2,000 + 6,000) / $(7 - 2.5 - 1.5) = $16,000 / $3 = 5,333
BEP ($) = $16,000 / ($3 / $7) = $37,333
(ii) Alternative B
BEP (Units) = $(16,000 + 7,500 + 4,500) / $(15 - 6.25 - 2.75) = $28,000 / $6 = 4,667
BEP ($) = $28,000 / ($6 / $15) = $70,000
(b) Alternative B has lower BEP in units. So, B will achieve profitability first.
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