A plant operation has fixed costs of $2,000,000 per year, and its output capacity is 100,000 electrical appliances per year.

A plant operation has fixed costs of $2,000,000 per year, and its output capacity is 100,000 electrical appliances per year. The variable cost is $40 per unit, and the product sells for $90 per unit. Solve, a. Construct the economic breakeven chart.  b. Compare annual profit when the plant is operating at 90% of capacity with the plant operation at 100% capacity. Assume that the first 90% of capacity output is sold at $90 per unit and that the remaining 10% of production is sold at $70 per unit.

solution :)

Step 1 of 4:)

A Break-even chart is the graphic presentation depicting the break-even point. It consists of fixed cost, total revenue, total cost, number of units and amount. The point of intersection between total cost and total revenue is depicted as a break-even point.

Step 2 of 4:)

(A): Break-even chart:

Step 3 of 4:)

Sales per unit	$90
Less: Variable cost per unit	$40
Contribution per unit (A)	$50
Fixed cost (B)	$2,000,000
Break-even units (B/A)	40,000 units

 

Break-even in dollars:

Contribution margin (Contribution/Sales)*100	55.56%
Fixed cost	$2,000,000
Break-even in dollars (Fixed cost/Contribution margin ratio)	$3,599,712

Step 4 of 4:)

(B): Profit/Loss:

90% Capacity:

Number of units at 90% Capacity (100,000@90%)	90,000
Sales (90,000 @ $90)	$8,100,000
Less: Variable cost (90,000 @ $40)	$3,600,000
Less: Fixed cost	$2,000,000
Profit	$2,500,000

 

100% Capacity:

Sales (90,000*$90 + 10,000*$70)	$8,800,000
Less: Variable cost (100,000 @ $40)	$4,000,000
Less: Fixed cost	$2,000,000
Profit	$2,800,000