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  • Gonzaga - Cost Volume Analysis

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    Joshrielle Gonzaga
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    The document analyzes the break-even point for a company with variable costs of $10 per unit and revenue of $40 per unit if it purchases 1, 2, or 3 machines. It calculates the break-even point for each number of machines in units and notes that 2 machines would allow production between 301-600 units, covering the estimated annual demand range of 580-660 units while remaining above the break-even point of 500 units. Therefore, the document recommends purchasing 2 machines.

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    The document analyzes the break-even point for a company with variable costs of $10 per unit and revenue of $40 per unit if it purchases 1, 2, or 3 machines. It calculates the break-even point for each number of machines in units and notes that 2 machines would allow production between 301-600 units, covering the estimated annual demand range of 580-660 units while remaining above the break-even point of 500 units. Therefore, the document recommends purchasing 2 machines.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Download as pdf or txt
    16 views1 page

    Gonzaga - Cost Volume Analysis

    Uploaded by

    Joshrielle Gonzaga
    The document analyzes the break-even point for a company with variable costs of $10 per unit and revenue of $40 per unit if it purchases 1, 2, or 3 machines. It calculates the break-even point for each number of machines in units and notes that 2 machines would allow production between 301-600 units, covering the estimated annual demand range of 580-660 units while remaining above the break-even point of 500 units. Therefore, the document recommends purchasing 2 machines.

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    © All Rights Reserved
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    JOSHRIELLE GONZAGA

    BSA12
    Variable Cost = 10 / Revenue per Unit = 40
    # of Machines Fixed Cost Range of Output

    1 9,600 0-300

    2 15,000 301-600

    3 20,000 601-900

    a. BREAK-EVEN POINT (BEP) of each range


    1. FC = 9,600
    9,600 / (40 - 10)
    9,600 / 30
    = 320 Units

    2. FC = 15,000
    15,000 / (40 - 10)
    15,000 / 30
    = 500 Units

    3. FC = 20,000
    20,000 / (40 - 10)
    20,000 / 30
    = 666.67 Units

    b. Upon further computation, there are 2 options that satisfy the BEP. 2 machines will satisfy the needed annual demand which is
    between 580 to 660 units. 2 machines will do about 500 units which is in its proper range of output, furthermore this also means
    that even if demand is at the lower end, it would still be above the break-even point and in turn generate profit. Therefore the the
    manager should go for the second option or buying 2 machines.

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