Break Even Analysis

501 Words3 Pages
Break-Even Analysis Break-Even Quantity (BEQ) = Fixed Costs Price/unit – Variable Cost/unit A firm has developed a new nonfogging photochromic ski goggle. The fixed costs of running the business are \$ 1,000,000. Variable costs/unit are \$ 18.00. What is the break-even points at the following prices: \$ 18.50; \$ 20.50; \$ 32.50 Bob Martin, a local information technology manager, is prepared to build high quality desktop computers that would compete favorably with Dell Computers in a direct-mail market. He estimates annual fixed costs of \$ 600,000 and variable costs of \$ 1,800/unit if he were to establish a production capacity of 100 units/month. Bob feels confident of selling 100 units/month by the end of the second year he is in business. Should he take on this business? What price should he charge? (Assume a comparable Dell Computer sells for \$ 2,500). A regional manufacturer of restaurant grills is considering entering the market for deluxe, propane-gas barbecue grills. The annual fixed costs to produce and market the proposed product is \$ 5,000,000 a year. The variable cost to produce each grill is estimated at \$ 70. The firm is considering a selling price of \$ 135 to retailers. The number of households considered to be within the potential market in the marketing area is 8,500,000. Households only buy new grills every 10 years. What is the market share that the business will have to achieve to break even? Would you enter this market? An electronic calculator manufacturer is considering automating their plant. Current sales are about 600,000 calculators/year, and they are increasing by about 5%/year. The calculators sell (to retailers) for \$ 10/unit. Automation would take variable cost/unit from the current \$ 7/unit to \$ 2/unit. However, automation would add \$ 3,000,000 to the \$ 1,000,000 fixed cost of running the operation. What are