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Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins
Edition 5ISBN: 0073526940Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins
Edition 5ISBN: 0073526940Cost Planning; Machine Replacement Calista Company manufactures electronic equipment. It currently purchases the special switches used in each of its products from an outside supplier. The supplier charges Calista $2 per switch. Calista’s CEO is considering purchasing either machine X or machine Y so the company can manufacture its own switches. The projected data are as follows:
| Machine X | Machine Y |
Annual fixed cost | $135,000 | $204,000 |
Variable cost per switch | 0.65 | 0.30 |
Required
1. For each machine, what is the minimum number of switches that Calista must make annually for total costs to equal outside purchase cost?
2. What volume level would produce the same total costs regardless of the machine purchased?
3. What is the most profitable alternative for producing 200,000 switches per year?
Verified
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Breakeven Point in Units
The breakeven point also known as the breakeven level is can be defined as that level of operations where the company’s revenue is just enough to meet its costs. It is the point at which the company makes no profit no loss and just meet its costs. The breakeven point has a profit equal to zero and revenues exactly equal to the total of variable and fixed costs incurred by the company.
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