Question

Stew’s Plastics produces a variety of CD cases. The best-selling product is the CD-50. Several products are produced on the same manufacturing line, so there is a setup cost each time a changeover is made for a new product. The setup cost for the CD-50 is $3200. In addition, it costs $1.82 for each unit produced, and for each 100 they have to put them in a box that costs $2.50. If there is less than 100 they will put them in a box (in other words, if they had 102, they would do 2 boxes, one with 100 and one with 2)

What is the break-even point (in terms of number of cases) if they sell them for $5.75 each?

Answer 1

Answer:

Break Even Point in number of cases = 820

Explanation:

As for the provided information:

The unit cost is $1.82 per unit produced and

$2.50/100 = $0.0250

This is because this $2.5 is cost for each 100 units

Note: It is not for per unit, it is for each 100 units, thus it is assumed that the 100 units are always made and thus, cost will be this.

That means total cost per unit = $1.82 + $0.025

= $1.845

Now, provided selling price = $5.75

Contribution therefore = $5.75 - $1.845 = $3.905

Fixed cost = Setup cost = $3,200

Now, therefore, approximate units to be produced for break even = Fixed cost/ Contribution

= $3,200/$3.905 = 819.46

That means 820 cases of CD 50