Manufacturing plans to increase capacity by adding new equipment. They have received two proposals.
Fixed Cost Variable Cost/Unit
Proposal A $32,000 $12.00
Proposal B $50,000 $10.00
The revenue generated by each unit is $20.00.
a. What is the break-even point in units (when profit = zero) for Proposal A?
b. What is the break-even point in units (when profit = zero) for Proposal B?
c. Draw the lines represented by both Proposal A and B on an X-Y coordinate graph with Units on the X axis and Profits on the Y axis.
Use the form y = mx + b or
Profit = (Revenue/unit - Variable cost/unit) * Units - Fixed Cost
d. At what unit volume do the lines intersect for Proposal A and B?