| Breakeven Analysis |
| Management believes it can sell a new product for $250. |
| First Scale of Operations: fixed costs of production are estimated to be $50,000 and the variable costs are $215 a unit |
| Second Scale of Operations: fixed costs of production are estimated to be at $150,000 and variable costs are $170 a unit |
| a. Complete the tables below for each scale of operations with the given levels of output and the relationships |
| between quantity and fixed cost, quantity and variable costs, and quantity and total costs. |
| First Scale of Operations |
| | Total Revenue | Variable Costs | Fixed Costs | Total Costs | Profit / |
| Quantity | | | | | (Loss) |
| 0 |
| 500 |
| 1,000 |
| 1,500 |
| 2,000 |
| 2,500 |
| 3,000 |
| Second Scale of Operations |
| | Total Revenue | Variable Costs | Fixed Costs | Total Costs | Profit / |
| Quantity | | | | | (Loss) |
| 0 |
| 500 |
| 1,000 |
| 1,500 |
| 2,000 |
| 2,500 |
| 3,000 |
| b. What is the breakeven number of units sold for each scale of operations? Note that partial units cannot be produced. |
| c. Assume that ½ of the fixed costs in each scale of operations is non-cash depreciation. What is the cash flow |
| generated by each scale of operations if 1,000 of units are sold? |
| d. Based on the results calculated in the tables for each scale of operations and the breakeven units calculations, what effect does the mixture of fixed and |
| variable costs have on a firm's operating earnings? |
miaaqu
copy_of_module_03_breakeven_analysis_problem.xlsx
