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 find the breakeven point, we need to use the following formula:
Breakeven point = Fixed costs / (Price per unit - Variable costs per unit)
Fixed costs = $450,000
Price per unit = $350
Variable costs per unit = $100 + $20 + $15 + $45 = $180
Number of engineering hours needed per unit = 2,800
Reduction in setup costs = $300 per setup
Reduction in engineering hours = 1,400 hours
New variable costs per unit = $100 + $20 + $15 + $45 - ($300 / 11,000) - ($45 / 2,800) = $157.78
New breakeven point = $450,000 / ($350 - $157.78) = 2,833.61 units
However, we need to take into account the reduction in engineering hours, which means that the total number of units that can be produced with the available engineering hours is:
2,800 / 1,400 = 2 units per engineering hour
11,000 / 2 = 5,500 setups per year
5,500 setups * 2 units per setup = 11,000 units per year
Therefore, the maximum number of units that can be produced and sold is 11,000 units per year, and we need to sell at least this many units to break even. However, to find the exact number of units, we need to take into account the new variable costs per unit:
Breakeven point = $450,000 / ($350 - $157.78) = 2,833.61 units
Maximum number of units that can be produced and sold = 11,000 units
Therefore, the answer is C) 12,170 units (rounded up to the nearest whole unit)

Fantasmas Incorporated Had the Following Information: Suppose Fantasmas Could