Wildhorse’s Candles will be producing a new line of dripless
candles in the coming years and has the choice of producing the
candles in a large factory with a small number of workers or a
small factory with a large number of workers. Each candle will be
sold for $10. If the large factory is chosen, the cost per unit to
produce each candle will be $3.00. The cost per unit will be $7.00
in the small factory. The large factory would have fixed cash costs
of $2.5 million and a depreciation expense of $300,000 per year,
while those expenses would be $530,000 and $100,000, respectively
in the small factory.
Calculate the accounting operating profit break-even point for both
factory choices for Wildhorse’s Candles. (Round answers
to nearest whole units, e.g. 152.)
1. Large factory Break-even point = ( Fixed cash costs + Depreciation expense ) / ( Selling price per unit - Variable cost per unit ) = ( 2500000 + 300000 ) / ( 10 - 3.00 ) | 400000 | Units |
2. Small factory break-even point = ( Fixed cash costs + Depreciation expense ) / ( Selling price per unit - Variable cost per unit ) = ( 530000 + 100000 ) / ( 10 - 7.00 ) | 210000 | Units |
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