Question

Blossom’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 $3.50. The cost per unit will be $6.40 in the small factory. The large factory would have fixed cash costs of $2.3 million and a depreciation expense of $300,000 per year, while those expenses would be $440,000 and $100,000, respectively in the small factory.

Calculate the accounting operating profit break-even point for both factory choices for Blossom’s Candles. (Round answers to nearest whole units, e.g. 152.)

The accounting break-even point for large factory is____  units and for small factory is enter a number of units____

Answer 1

Accounting break even point = Total fixed costs/(Selling price per unit – Variable cost per unit)

Large Factory = (2,300,000+300,000)/(10-3.50)

= 400,000 units

Small Factory = (440,000+100,000)/(10-6.40)

= 150,000 units