# 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 Adapter**AudioCables, 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 (BEP_{U}) 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.

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