Hasgood Industries has just received a major long-term contract. They need to ex

Question

Hasgood Industries has just received a major long-term contract. They need to expand the production capabilities particularly in stamping out large parts. They gathered information on four hydraulic presses that would perform this task. The product will be sold at $100 per unit. Information on the cost of the four possible hydraulic presses are presented below Matsuki Helgard $160,000 Raster Jacobs Fixed Costs $120,000 $145,000 $90,000 $40 Variable Costs 38 35 31 What is the break-even point for the use of each machine? (round to nearest whole number) Raster Jacobs Matsuki Helgard Based on crossover quantities, only 2 machines should be considered. Identify that crossover quantity (nearest whole number) and which machine is the best choice for the range of quantities: Machine

Explanation / Answer

Break-even point = Fixed cost/(Selling price – Variable cost)

Raster BEP = 90000/(100-40) = 1500 units

Jacobs BEP = 120000/(100-38) = 1935units

Matsuki BEP = 145000/(100-35) = 2231 units

Helgard BEP = 160000/(100-31) = 2319 units

Cross over point is the point where total costs will be equal

Total cost = Fixed cost + Quantity*unit variable cost

Raster TC = 90000+40Q

Jacobs TC = 120000+38Q

Matsuki TC = 145000+35

Helgard TC = 160000 + 31Q

By equalling all the total costs we get the crossover points.

Raster TC = Jacobs TC

Q = 15000

Raster TC = Matsuki TC

Q = 11000

Raster TC = Helgard TC

Q = 7777.78

Jacobs TC = Matsuki TC

Q = 8333.33

Jacobs TC = Helgard TC

Q = 5714.28

Matsuki TC = Helgard TC

Q = 3750

Machine Raster < 7778 <= Machine Helgard

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