question archive Smithson Cutting is opening a new line of scissors for supermarket distribution
Subject:Operations ManagementPrice:2.87 Bought7
Smithson Cutting is opening a new line of scissors for supermarket distribution. It estimates the fixed cost to be $500 and the variable cost to be $.50/unit. Selling price is estimated to be $.75 per unit. What is the breakdown point in units?What is the breakeven point in dollars?
Answer:
Given Fixed cost F= $500
Variable cost(V)= $.50 / unit
Selling price(S)= $.75/unit
What is the breakdown point in units?
Break down(Q) = F/(S-V)
= 500/ (0.75-0.5)
= 2000
At 2000 units Smithson cutting gets breakdown
What is the breakeven point in dollars?
To convert Q in to dollar terms multiply Q with selling price S
Breakeven point in dollars = 2000* 0.75 = $1500
Smithson Cutting gets breakdown point at $1500 dollars