Use the breakeven model to determine which of the statements below is TRUE according to the information provided in the table relating to two different locations considered for a new manufacturing facility.
LOCATION ANNUAL FIXED COSTS UNIT VARIABLE COSTS
Site A $50,000 $15
Site B $20,000 $30
answer
a. Site A is the desired location if the production rate is 1,500 units per year.
b. The breakeven point for these two locations is 2,000 units per year
c. Site B is the desired location if the production rate is 2,500 units per year
d. The breakeven point for these two locations is 3,000 units per year
Answer : b. The breakeven point for these two locations is 2,000 units per year
Working notes for the above answer is as follow
LOCATION ANNUAL FIXED COSTS UNIT VARIABLE COSTS
Site A $50,000 $15
Site B $20,000 $30
At BEP Both A and B are equal
Site A= SiteB
Fixed cost + variable cost of Site A = Fixed cost + variable cost of Site B
50,000 +15 x = 20,000 +30 x
30 x-15 x=5000-20000
15x= 30,000
x=2000
If 2000 inits are produced then both location are at BEP
