Use the following to answer the questions below.
Luvmatics plans to produce a new product.Three different models are planned: the Regular,Large,and Jumbo.The fixed costs depend on which of two locations are used;in San Francisco the fixed costs would be $2.5 million per year,but in Tuttle the fixed costs would be $1.2 million.Sale prices and variable costs for the three models are shown in the table. Table A.1
-Use the information in Table A.1.What is the difference in break-even points for the Large model between Tuttle and San Francisco?
A)fewer than 25,000 units
B)between 25,000 units and 40,000 units
C)between 40,000 units and 55,000 units
D)more than 55,000 units

Question

Use the following to answer the questions below.
Luvmatics plans to produce a new product.Three different models are planned: the Regular,Large,and Jumbo.The fixed costs depend on which of two locations are used;in San Francisco the fixed costs would be $2.5 million per year,but in Tuttle the fixed costs would be $1.2 million.Sale prices and variable costs for the three models are shown in the table.  Table A.1
-Use the information in Table A.1.What is the difference in break-even points for the Large model between Tuttle and San Francisco?
A)fewer than 25,000 units 
B)between 25,000 units and 40,000 units 
C)between 40,000 units and 55,000 units 
D)more than 55,000 units

Quizplus · Accepted Answer

To find the break-even point for the Large model, we need to divide the fixed costs by the contribution margin per unit (selling price - variable cost per unit).

For the San Francisco location: 
Large model contribution margin = $55 - $30 = $25 
Break-even point = $2.5 million / $25 = 100,000 units

For the Tuttle location: 
Large model contribution margin = $45 - $25 = $20 
Break-even point = $1.2 million / $20 = 60,000 units

The difference in break-even points between Tuttle and San Francisco is: 
100,000 - 60,000 = 40,000 units

Therefore, the best choice is to produce the Large model in Tuttle since the break-even point is lower, and they will be able to reach profitability at a lower sales volume.

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