When expenses and revenues are equal, this is known as the “break-even point†or BEP. To determine break-even, an examination of fixed and variable costs (expenses) in relationship to revenues is necessary. Understanding where the BEP is for a given product or service helps managers determine how to make modifications to increase profitability.
For this Assignment, review this week’s Media, the Weekly Briefing, and the information in the scenario posted in the entry titled Week 6 Assignment located in the Doc Sharing link.
The Assignment:
- Part 1: Calculate the break-even point for the toy company under each of the two different scenarios using a spreadsheet program such as Excel. Be sure to apply the appropriate accounting process to determine the break-even points.
- Part 2: Recommend which option, based on the scenarios for the company, that you would select using a word processing program such as Word. Support your conclusion with both a written analysis and quantitative data.
Rory Martin is planning to make a unique toy that promises to keep small children entertained for hours. Rory believes that parents everywhere will want to buy this toy. With a selling price of $30, Rory 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 $3,000 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 $5,500 per month, insurance $800 per month, and other fixed costs are estimated at $2,000 per month. This facility has a capacity to produce 400 toys per month at a variable cost for each toy of $5.00.
"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"
