Breakeven Analysis
Toyota will build an auto manufacturing plant in Thailand at an estimated cost of $374.2 Million. In the first few years of operation, its product line will consist of Tercel, Corolla and Camry.
The factory can make 30,000 cars a year at full capacity (any combination of the three cars).
Cost estimates for the product line is as follows:
Material cost/car:
$5000 (Tercel), $7000 (Corolla), $9000 (Camry)
Labor cost per car:
$1400 (Tercel), $2000 (Corolla), $2600 (Camry)
Rebates: 5% of sales
Other promotional expenses: 5% of sales
Administrative costs: $50,000 per month
Toyota's selling price is $16,000 for the Tercel; $20,000 for the Corolla; $24,000 for the Camry
For every Tercel sold, it expects to sell 3 times as many Corollas, and 4 times as many Camrys.
(a) At break-even, how many cars of each type would Toyota have sold?
(b) How soon can Toyota break-even, assuming it can operate at full factory capacity?
Hint: Use the same approach as the Campbell's soup problem - the only difference is that there are now three products.