Luvmatics plans to produce a new product. Three different models are planned: the Regular, Large, and Jumbo. The fixed costs depend on which of two locations are used; in San Francisco the fixed costs would be $2.5 million per year, but in Tuttle the fixed costs would be $1.2 million. Sale prices and variable costs for the three models are shown in the table.
$$\begin{array} { | l | c | c | c | }
\hline \text { Table A 1 } & & { \text { Model } } \
\hline \text { } & \text { Regular } & \text { Large } & \text { Jumbo } \
\text { Variable Cost} & \$ 5 \text { /unit }& \$ 7 \text { /unit } & \$ 10 / \text { unit } \
\text { Sale Price } & \$ 25 / \text { unit } & \$ 41 \text { /unit } & \$ 68 / \text { unit } \
\hline
\end{array}$$
-Use the information in Table A.1.How many units of the Regular size must be sold each year to break even if production is at the San Francisco plant?
A) Fewer than 30,000 units
B) More than 30,000 units but fewer than 80,000 units
C) More than 80,000 units but fewer than 130,000 units
D) More than 130,000 units

Question

Luvmatics plans to produce a new product. Three different models are planned: the Regular, Large, and Jumbo. The fixed costs depend on which of two locations are used; in San Francisco the fixed costs would be $2.5 million per year, but in Tuttle the fixed costs would be $1.2 million. Sale prices and variable costs for the three models are shown in the table.
 $$\begin{array} { | l | c | c | c | } 
\hline \text { Table A 1 } & & { \text { Model } } \
\hline \text {  } & \text { Regular } & \text { Large } & \text { Jumbo } \
\text { Variable Cost} & \$ 5 \text { /unit }& \$ 7 \text { /unit } & \$ 10 / \text { unit } \
\text { Sale Price } & \$ 25 / \text { unit } & \$ 41 \text { /unit } & \$ 68 / \text { unit } \
\hline
\end{array}$$
-Use the information in Table A.1.How many units of the Regular size must be sold each year to break even if production is at the San Francisco plant?
A) Fewer than 30,000 units
B) More than 30,000 units but fewer than 80,000 units
C) More than 80,000 units but fewer than 130,000 units
D) More than 130,000 units

Quizplus · Accepted Answer

To break even, the total revenue must equal the total costs. The break-even point in units is calculated as Fixed Costs / (Sale Price - Variable Cost). For the Regular model in San Francisco: $2,500,000 / ($25 - $5) = 125,000 units. This falls in the range of more than 80,000 units but fewer than 130,000 units.

Luvmatics Plans to Produce a New Product -Use the Information in Table A