What is the break-even quantity level

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Reference no: EM13224201

Berditzman Shoe C. will produce a custom-style shoe if the order size is large enough to provide a reasonable profit. For each custom-style order the company incurs a fixed cost of $1,000 for the production setup. The variable cost is $30 per pair and each pair sells for $40.

a. Does this production setting exhibit economies or diseconomies of scale? Justify your answer.

b. What is the break-even quantity level?

c. Suppose that they have decided to accept a custom-style order that has sufficient volume to exceed break-even and have already set up for production. The customer now indicates that they are only willing to pay $31.99 per pair of shoes.

i. What is the economic profit/loss associated with this order if you proceed?

ii. Should you proceed or back out of this transaction?

Reference no: EM13224201

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