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What is the break even quantityif the cost of manufacture is the same whichever method is used if A is a fixed cost of 40000 and a variable of 23 and b has a fixed cost of 52000?
Michaelrobinsongp473...
There question is incomplete:
- There is no variable cost given for manufacturing method B. I'll assume it is b.
- It is unclear as to quantity for which the cost of manufacturing by both methods is the same. I'll assume it is the break-even quantity.
The break even point is when the revenue from sales = cost of manufacture
So the question is asking for what quantity is the cost of manufacture using method A equal to the cost of manufacture using method B.
cost of manufacture = fixed cost + variable cost × quantity
Method A: manufacturing cost = 40,000 + 23 × quantity
Method B: manufacturing cost = 52,000 + b × quantity
→ 40,000 + 23 × quantity = 52,000 + b × quantity
→ 23 × quantity - b × quantity = 52,000 - 40,000
→ quantity(23 - b) = 12,000
→ quantity = 12,000/(23 - b)
I'll let you fill in the value of b; if b has no variable cost, b = 0.
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