Reference no: EM133001804

Question - When doing work please be sure to include the following: (1) basic formula without any numbers; (2) formula with the numbers included; and (3) the answers.

Part 1: Break-Even Analysis (Profit Model)

Kramerica Industries has successfully completed production of its "tip calculators" and would like to perform a break-even profit model analysis. The combination of equipment purchase cost and other resource and facility fixed costs total $550,000. Each calculator costs $12 to produce, but will sell for $38.

(a) How many calculators does Kramerica need to sell in order to achieve a volume break-even point?

(b) What is the corresponding revenue break-even point?

(c) How can Kramerica use the volume break-even point value calculated in part (a)?

The Excel spreadsheet can be very useful for this part as it performs many of these calculations) - In other words:

a. What types of recommendations would you make to Kramerica if the expected number of calculator sales is 22,000 over the next year? Should Kramerica purchase the equipment with this expected sales volume?

b. Are they going to be profitable; if so, by how much?

c. Is there going to be a loss; if so, how much? If there is a loss, what might you recommend?).

(d) Please sketch a plot of the "Revenues and Costs" versus the "Number of Calculators", and include both the total revenue and total cost lines, and also the volume and revenue break-even points. Clearly label the x-axis and y-axis, and indicate the points of Fixed Costs, volume break-even point, and revenue break-even point.