Question

Kendall Lane is planning to make a unique toy that promises to keep small children entertained for hours. Kendall believes that parents everywhere will want to buy this toy. With a selling price of $25, Kendall now needs to determine the costs and the required number of toys needed to be sold before earning a profit, the break-even point. After researching the costs to produce the toy, the following two locations with associated costs have been determined: · The rent for the small facility will be $2,600 per month, insurance $600 per month, and other fixed costs are estimated at $1,500 per month. This facility has a capacity to produce 200 toys per month at a variable cost for each toy of $5.00. · The rent for a larger facility will be $5,000 per month, insurance $800 per month, and other fixed costs are estimated at $2,000 per month. This facility has a capacity to produce 450 toys per month at a variable cost for each toy of $5.00

Break even Analysis Small Facility	Break even Analysis Large Facility
Price	Price
Variable Cost	Variable Cost
Fixed Cost	Fixed Cost
Rent	Rent
Insurance	Insurance
Other	Other
Break even quantity	Break even quantity

Answer 1

Breakeven point = Total fixed cost / (Selling price per unit - Variable cost per unit)

Breakeven point small facility = ($2,600 + $600 + $1,500) / ($25 - $5) = 235 units

Breakeven point large facility = ($5,000 + $800 + $2,000) / ($25 - $5) = 390 units

Break even Analysis Small Facility	Break even Analysis Large Facility
Price: $25	Price: $25
Variable cost: $5	Variable cost: $5
Fixed cost	Fixed cost
Rent: $2,600	Rent: $5,000
Insurance: $600	Insurance: $800
Others: $1,500	Others: $2,000
Breakeven quantity: 235 units	Breakeven quantity: 390 units