Given the price and cost data shown in the following table of each of the two firms A and B, find the breakeven point. Firm .......Sales price ..Variable operating   Fixed operating cost...

Given the price and cost data shown in the following table of each of the two firms A and B, find the breakeven point.

Firm .......Sales price ..Variable operating   Fixed operating cost

................per unit      ..cost per unit

A .............16.00                6.75                      24,600

B ..............20.00               9.75                      30,600

What is the operating breakeven point in units for each firm?

justaguide | College Teacher | (Level 2) Distinguished Educator

Posted on

From the information provided, we can see that the fixed operating cost for Firm A is 24600 and that for Firm B is 30600. The variable operating cost per unit is 6.75 for firm A and 9.75 for firm B. Firm A is able to sell each unit at 16 and Firm B at 20.

Let the number of units to be manufactured by firm A for breakeven be equal to A.

So we have 16*A = A*6.75 + 24600

=> A( 16 - 6.75) = 24600

=> A* 9.25 = 24600

=> A = 24600/ 9.25

=> A = 2660

Therefore Firm A should manufacture 2660 units for break even.

Similarly for Firm B, let the units to be manufactured for breakeven be equal to B.

20*B = 9.75*B + 30600

=> B(20 - 9.75) = 30600

=> B*10.25 = 30600

=> B = 30600/10.25

=> B = 2986

Therefore Firm B should manufacture 2986 units for break even.