Fantasmas Incorporated had the following information: Suppose Fantasmas could reduce setup costs by $300 per setup and could reduce the number of engineering hours needed to 1,400 hours. How many units must be sold to break even in this case?

Question

Fantasmas Incorporated had the following information:  Suppose Fantasmas could reduce setup costs by $300 per setup and could reduce the number of engineering hours needed to 1,400 hours. How many units must be sold to break even in this case?

Quizplus · Accepted Answer

To calculate the break-even point, we need to use the formula:

Break-even point = Fixed costs / (Sales price per unit - Variable costs per unit)

The fixed costs in this case are $60,000 (as given in the original information).

The sales price per unit is $180 (as given in the original information).

To calculate the variable costs per unit with the new information, we need to consider the new setup cost and engineering hours.

The original setup cost per unit was $1,000, but with the reduction of $300 per setup, the new setup cost per unit will be $700.

The original engineering hours needed was 1,800 hours, but with the reduction of engineering hours to 1,400 hours, the variable cost per unit will be reduced by (400/1,800) * $90 = $20. Therefore, the variable cost per unit will now be $70.

Substituting these values into the break-even point formula:

Break-even point = $60,000 / ($180 - $70)
Break-even point = 12,170 units

Therefore, option C is the correct choice.

Fantasmas Incorporated Had the Following Information: Suppose Fantasmas Could