Question

Assume that you and your brother plan to open a business that will make and sell...

Assume that you and your brother plan to open a business that will make and sell a newly designed type of sandal. Two robotic machines are available to make the sandals, Machine A and Machine B. The price per pair will be $30.00 regardless of which machine is used. The fixed and variable costs associated with the two machines are shown below. What is the difference between the break-even points for Machines A and B? Do not round your intermediate calculations. (Hint: Find BEB - BEA)

Machine A Machine B
Price per pair (P)

$30.00

$30.00
Fixed costs (F)

$25,000

$100,000
Variable cost/unit (V)

$7.00

$4.00

​

a.

3,035
b.

2,621
c.

2,759
d.

2,069
e.

2,235
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Homework Answers

Answer #1

Machine A:

Price per pair = $30.00
Variable Cost per pair = $7.00

Contribution Margin per pair = Price per pair - Variable Cost per pair
Contribution Margin per pair = $30.00 - $7.00
Contribution Margin per pair = $23.00

Breakeven Point = Fixed Costs / Contribution Margin per pair
Breakeven Point = $25,000 / $23.00
Breakeven Point = 1,087 pairs

Machine B:

Price per pair = $30.00
Variable Cost per pair = $4.00

Contribution Margin per pair = Price per pair - Variable Cost per pair
Contribution Margin per pair = $30.00 - $4.00
Contribution Margin per pair = $26.00

Breakeven Point = Fixed Costs / Contribution Margin per pair
Breakeven Point = $100,000 / $26.00
Breakeven Point = 3,846 pairs

Difference in Breakeven Points = Breakeven Point of Machine B - Breakeven Point of Machine A
Difference in Breakeven Points = 3,846 - 1,087
Difference in Breakeven Points = 2,759

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