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14. Given the following make-buy information, what would be the break sen.point? Make Option $7500 Buy Option $1500 Fixed Cos
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Answer #1

Let the volume of output = Q

For make option

  • Fixed cost (FC) = $7500
  • Variable cost (VC) = $4

For buy option

  • Fixed cost (FC) = $1500
  • Variable cost (VC) = $9

The break even point is that point or volume of output at which the total cost for both the alternatives is equal

So the break even point can be calculated through the following equation

Total cost for make option = Total cost for buy option

=> FC + (Q X VC) = FC + (Q X VC)

= > 7500 + (Q X 4) = 1500 + (Q X 9)

=> 7500 + 4Q = 1500 + 9Q

=> 9Q -4Q = 7500-1500

=> 5Q = 6000

=> Q = 6000/5

=> Q = 1200 units

So the answer is option a

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