Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 42

Extensions of the CVP Model—Semifixed (Step) Costs

Cesar’s Bottlers bottles soft drinks in a factory that can operate either one shift, two shifts, or three shifts per day. Each shift is eight hours long. The factory is closed on weekends. The sales price of $2 per case bottled and the variable cost of $0.90 per case remain constant regardless of volume. Cesar’s Bottlers can increase volume by opening and staffing additional shifts. The company has the following three choices:

	?Daily Volume Range (Number of Cases Bottled)	?Total Fixed Costs per Day
1 Shift	(0–2,000)	$1,980
2 Shifts	(2,001–3,600)	3,740
3 Shifts	(3,601–5,000)	5,170

Required

a. Calculate the break-even point(s).

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b. If Cesar’s Bottlers can sell all the units it can produce, should it operate at one, two, or three shifts? Support your answer.

Step 1 of 4

a.

Calculate break-even point

Break-even point is the level of operations at which the revenue and total costs (variable costs and fixed costs) become equal. There is no profit or no loss at break-even point level.

C Bottlers bottles soft drinks in a factory that can operate either one shift, two shifts or three shifts per day. The Sales price is $2 per case bottled and the variable cost is $0.90 per case.

Calculate the break-even point using the following equation: