Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 47

Multiple Products; ABC Assume the same information as for Problem 9-44 above, with this additional information: product A is made in batches of 3,000 units and product B is made in batches of 750 units. The nature of the production process is such that each batch of product must be made in these quantities. We also assume that total batch-level costs of $60,000 vary directly with the number of batches used, so that a reduction in the number of batches produced will reduce total batch-level costs.

Required

1. Determine the breakeven point in units for each product using ABC.

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2. Assume that expected sales of product A and B are 32,000 units and 8,000 units (instead of 18,000 and 4,500), and that the batch size for product A is 4,000 units per batch while the batch size for product B is 1,000 units per batch. All the remaining information from 9-44 is the same. Using ABC, determine the breakeven point in units for each product.

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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.