Question

Alternative A has fixed initial costs of $ 15,000 per year. Alternative B has fixed costs of $25,000 per year. The variable costs per unit of Alternative A is twice the variable cost per unit for Alternative B. Determine the variable costs per unit for both Alternative A and B, respectively if the breakeven quantity is 500 units. Assume there is no other cost.

Answer 1

Sol :

Fixed costs for A : $ 15000 per year

Fixed costs for B = $25000 per year

Variable cost of A = 2 x variable cost of B

Breakeven quantity = 500 units

Breakeven point for A

Total Revenue = Total Cost

Price × Sales(quantity) = Fixed Cost + Variable cost

Price = (15000 + 2VC of B )/ 500     ............(1)

Brealeven point for B

Total revenue = Total Cost

Price = (25000 + VC of B )/500 ...............(2)

Equating (1) and (2)

(15000 + 2VC for B )/500 = (25000 + VC for B )/ 500

VC For B = 10000

VC for A = 20000