Question

The Biloxi Company has the following cost structure: fixed costs of $70,000 per month and variable costs of $50 per unit. The Birmingham Company has the following cost structure: fixed costs of $60,000 per month and variable costs of $60 per unit. Both companies make the same product, which sells for $100 per unit. There is a sales level at which these two companies earn the same profits. What is that sales level? Which company is more profitable as sales volume exceeds this sales level?

Answer 1

rate positively ..

		Biloxi Company		Birmingham Company
	Sales price per unit =	100		100
Less	Variable cost per unit =	50		60
	contribution margin	50		40
	Fixed cost	70000		60000
	Lets assume unit at break even is x
	Therefore	x*50-70000=x*40-60000
		50x-10x=	10000
		x=	1000
	Therefore at 1000 unit both company will have the same profit.
	If the sales volume exceed the 1000 unit Biloxi Company will make more profit .