Breakeven comparisons: Algebraic: Given the price and cost data shon in the acco
ID: 2653893 • Letter: B
Question
Breakeven comparisons: Algebraic: Given the price and cost data shon in the accompanying table for each ofr the three firms, F, G, and H, answer the questions that follow.
FIRM F: Sale price per unit $18, Variable operating cost per unit $6.75, Fixed operating cost $45,000
FIRM G: Sale price per unit $21, Variable operating cost per unit $13.50, Fixed operating cost $30,000
FIRM H: Sale price per unit $30, Variable operating cost per unit $12.00, Fixed operating cost $90,000
a. What is the operating breakeven point in units for each firm?
b. How would you rank these firms in terms of their risk?
Explanation / Answer
Answer:
Calculation of Breakeven Points (In units)
Sale Price
Variable Cost
Contribution Per unit
Fixed Cost
Breakeven Point (Units)
A
B
C = A-B
D
D/C
FIRM F
$ 18.00
$ 6.75
$ 11.25
$ 45,000.00
4,000
FIRM G
$ 21.00
$ 13.50
$ 7.50
$ 30,000.00
4,000
FIRM H
$ 30.00
$ 12.00
$ 18.00
$ 90,000.00
5,000
Risk ranking for these firms can be done on the basis of their breakeven points.
Hence Firm H is more riskier than F and G
Calculation of Breakeven Points (In units)
Sale Price
Variable Cost
Contribution Per unit
Fixed Cost
Breakeven Point (Units)
A
B
C = A-B
D
D/C
FIRM F
$ 18.00
$ 6.75
$ 11.25
$ 45,000.00
4,000
FIRM G
$ 21.00
$ 13.50
$ 7.50
$ 30,000.00
4,000
FIRM H
$ 30.00
$ 12.00
$ 18.00
$ 90,000.00
5,000
Risk ranking for these firms can be done on the basis of their breakeven points.
Hence Firm H is more riskier than F and G
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