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

Exercise 24

Ford Manufacturing has received an order from Roy Inc. for 500 sport shirts. Ford could produce the shirts or Ford could buy the shirts from another supplier to fill the Roy order, at $20 per shirt. The production at Ford is $10 per shirt plus $1,000 cost per batch. Which option will be preferable to Ford?

Step 1 of 2

Fixed costs are costs which does not changes with change in level of production. Variable costs are costs which does changes with change in level of production. Breakeven is point of no profit i.e. where revenue is equal to total costs.