Solved by verified expert :Breakeven
Analysis
Management believes
it can sell a new product for $250.
First Scale of Operations:
fixed costs of production are estimated to be $50,000 and the variable costs
are $215 a unit
Second Scale of Operations:
fixed costs of production are estimated to be at $150,000 and variable costs
are $170 a unit
a. Complete the tables below
for each scale of operations with the given levels of output and the
relationships
between quantity and fixed cost, quantity
and variable costs, and quantity and total costs.
b. What
is the breakeven number of units sold for each scale of operations? Note
that partial units cannot be produced.
c.
Assume that ½ of the fixed costs in each scale of operations is non-cash
depreciation. What is the cash flow
generated by each scale of operations if
1,000 of units are sold?
d.
Based on the results calculated in the tables for each scale of operations
and the breakeven units calculations, what effect does the mixture of fixed
and
variable costs have on a
firm’s operating earnings?
