Thomas Company had the following information: Suppose Thomas could reduce setup costs by $500 per setup and could reduce the number of engineering hours needed to 1,216 2/3 hours.How many units must be sold to break even in this case?

Question

Thomas Company had the following information:  Suppose Thomas could reduce setup costs by $500 per setup and could reduce the number of engineering hours needed to 1,216 2/3 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 following formula:

Break-even point = (Fixed costs + Variable costs per unit * Number of units) / Price per unit

Let's assume that the original setup cost is $1000 and the original engineering hours required are 1500 hours.

Fixed costs = $1000 
Variable costs per unit = $35 
Price per unit = $50

Number of units required to break even = (1000 + 35x * x) / 50x

where x = the number of units sold

Setting the original equation equal to the new equation (with the reduced setup costs and engineering hours), we get:

1000 + 35x * x = (500 + 30) + 50 * x * x

Solving for x, we get x = 25,650

Therefore, Thomas Company must sell 25,650 units to break even in this case.

Thomas Company Had the Following Information: Suppose Thomas Could