BREAK EVEN ANALYSISBREAK EVEN ANALYSIS

PROBLEM

Owner of Williams products, is evaluating whether to Owner of Williams products, is evaluating whether to

introduce a new product line. After thinking through the introduce a new product line. After thinking through the

production process and cost of raw materials and new production process and cost of raw materials and new

equipments. Williams estimates the variable cost of each equipments. Williams estimates the variable cost of each unit produced and sold at $6 and fixed costs per year at unit produced and sold at $6 and fixed costs per year at $60,000.$60,000.

a.a. If the selling price is set at $18 each, how many units must If the selling price is set at $18 each, how many units must be produced and sold for Williams to break even? Use both be produced and sold for Williams to break even? Use both graphical and algebric approaches?graphical and algebric approaches?

b.b. Williams forecasts sales of 10,000 units for the first year if Williams forecasts sales of 10,000 units for the first year if the selling price is set at $14.00 each. What would be the the selling price is set at $14.00 each. What would be the total contribution to profit from this new product?total contribution to profit from this new product?

c.c. If the selling price is set at $12.50, Williams forecasts that If the selling price is set at $12.50, Williams forecasts that first year sales would increase to 15,000 units. Which first year sales would increase to 15,000 units. Which pricing strategy would result in greater profit contribution? pricing strategy would result in greater profit contribution?

d.d. What others factors would be crucial in decision making?What others factors would be crucial in decision making?

ProblemProblemA product at the Zarmina Productshas enjoyed reasonable sales volumes, but its contribution to profit has been disappointing. Last year, 17,500units were produced and sold. The selling price is $22 per unit, “c” is $18, and F is $80,000. a. What is the break even quantity of the product?b. The company is considering ways to either

stimulates sales volume or decrease variable cost. Management believes that sales can be increased by 30%or “c” can be reduced to 85% of its current level. Which alternate leads to higher profit contribution.

c. What % change in the per unit profit contribution generated by each alternative in part (b).

ProblemProblem A TV service that costs $10 per

month to provide can be sold on the information highway for $15 per client per month. If a service area includes a potential of 15,000 customers, what is the fixed cost value for the company?

ProblemProblem