Can you explain and show formulas, Thanks!!!!! Tom Johnson Manufacturing intends

Question

Can you explain and show formulas, Thanks!!!!!

Tom Johnson Manufacturing intends to increase capacity through the addition of new equipment. Two vendors have presented proposals. The fixed cost for proposal A is $50,000, and for proposal B, $70,000. The variable cost for A is $12, and for B, $10. The revenue generated by each unit is $20.

a) What is the Break-Even Point (BEP) in units for proposal A?

b) What is the BEP in units for proposal B?

c) If the expected volume is 8,500 units, which proposal should be chosen?

d) If the expected volume is 15,000 units, which proposal should be chosen?

Explanation / Answer

a) let break even point for A is x units,

therefore for break even

fixed cost +variable cost =revenue

50000+12x=20x

8x =50000

x=6250

b) for B; for break even

70000+10*x=20x

x=7000 unit

c) for 8500 units expected profit for proposal A =revenue -cost =8500*(20-12)-50000=18000

for 8500 units expected profit for proposal B =revenue -cost =8500*(20-10)-70000=15000

therefore proposal A is suitable

d)

for 15000 units expected profit for proposal A =revenue -cost =15000*(20-12)-50000=70000

for 15000 units expected profit for proposal B =revenue -cost =15000*(20-10)-70000=80000

therefore proposal B is suitable

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