# AudioCables, Inc., Is Currently Manufacturing An AdapterExample of the Break-even Point - Analysis of Alternatives

### Problem Data

It is necessary to find the alternative that generates the highest profit using the break-even analysis:

Alternative 1

Fixed Costs (F): 14000

Variable Cost per Unit (V): 0.6

Selling Price per Unit (P): 1.3

Expected unit sales (U): 30000

Alternative 2

Fixed Costs (F): 20000

Variable Cost per Unit (V): 0.75

Selling Price per Unit (P): 1.3

Expected unit sales (U): 50000

Description
AudioCables, Inc., Is Currently Manufacturing An AdapterAudioCables, Inc., is currently manufacturing an adapter that has a variable cost of \$0.60 per unit and a selling price of \$1.30 per unit. Fixed costs are \$14,000. Current sales volume is 30,000 units. The firm can substantially improve the product quality by adding a new piece of equipment at an additional fixed cost of \$6,000. Variable costs would increase to \$0.75, but sales volume should jump to 50,000 units due to a higher-quality product. Should AudioCables buy the new equipment?

## Solution

The following are the calculations and detailed graphs to obtain the best alternative according to the data provided:

### Alternative 1:

a) Break-even point in units:

To calculate the break-even point in units for alternative 1 (BEPU) we will use the following formula:

According to the results, the company must sell 20000 units to break even (no profit or loss).

b) Break-even point in dollars:

To calculate the break-even point in dollars (BEP\$), we will use the following formula:

The company must earn \$26000 to break even (no profit or loss).

c) Profits Earned:

To calculate the profit obtained when 30000 units are sold, we will do the following:

As profits have a positive, this means that the company makes a profit of \$7000.

Note: You can zoom the chart using the scroll wheel and move the view by dragging it with the mouse.

## Learn with step-by-step explanations

At PM Calculators we strive to help you overcome those tricky subjects in an easier way.