Someone, please explain this Your company is manufacturing a complex part for a

Question

Someone, please explain this

Your company is manufacturing a complex part for a new baggage handling system from an advanced material, and is considering an upgrade to the current machine. Two options are available - the breakeven analysis for both is shown in the graph. All answers, when appropriate, must include a value and units. Option One Option Two -' Revenue (R) 7.S0E+OS 2.SDE+0 0.0E+00 5.0E+04 1.0E+05 15E+05 2.0E+05 2.5E+05 Amount of Material Processed (A) [kg] If management chooses Option Two, but wants the process to breakeven at 50,000 kilograms, what must the selling price be set at to achieve this? A. S6/kg B. S7/kg C. $3/kg D. $4/kg Answer

Explanation / Answer

SOLUTION:

In option One the total cost of revenue is increasing more than option Two .So the breakeven point occur

when total cost reaches the total production.But in both of this cases there is a chance to reach breakeven point more over in option Two there is much more chances than in option One .So we may take option Two as best to gain profit(since it produce more products in short period).

from graph the F.C of option two is

F.C=3E+0.5=300,000 and V.C=1

now let SP be the selling price for 50,000 breakeven

there fore (50,000)SP=300,000+50,000*1

50,000SP=350000

hence SP=$7

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