Keyfacts:

1. Newproductproducedbyanewfactory
2. Tominimizedistributioncosts,thefactoryislocatednearthetargetmarket
3. Theproductstandardizationisexpectedtocreateproductionefficiencies
4. Capitalfornewfactory:14million
5. Annualmaintenance:5%ofcapital
6. Fuelandutilitycosts:$500,000peryear
7. Wagerate:$10perhour
8. 1.5laborhourstoproduceaunit
9. Fringebenefitspaidtooperatinglaboris15%ofdirectlaborcosts
10. Supervisory,clerical,technical,managerialsalaries:$350,000peryear
11. Taxesandinsurance:$200,000peryear
12. Miscellaneousexpenses:$250,000peryear
13. Straightlinedepreciationat30yearlifewith$4millionsalvagevalue
14. Materials(metal,paint,etc.)toproduceunitare$19.80perunit
15. Cratingandshippingsuppliesare$2.50perunit
16. Pricedemandchart(anticipatemarketshareincreasefromcurrent15%to
25%asaresultofcostadvantageofstandardization)
AverageSalePrice
perunit
$90
$103
$115
$135

Salesinunitsateach
pricepoint
40,000
38,000
31,000
22,000

Createabreakevencapacityanalysistodetermine:
1.
2.
3.
4.

Bestprice,productionrate,andprofit
BreakevenproductionratewiththepriceinAnswer1
BreakevenpricewiththeproductionrateinAnswer1
Sensitivityofprofitstovariablecost,priceandproductionrate