Given the Fixed Cost required for the product of $164,000, at $180 to produce each unit, and a $200 sale price, the break even point for this venture currently lies at 8,200 units (in 8.2 years).

 

Christina studies the problem further and establishes that based on the characteristics of the product, production methods used, and quantities involved, a learning rate of 80% could be realized.

Analysis

This case provides a study in tradeoffs that pit sales, product pricing, fixed and variable costs, and even learning rates against each other. Complete a Break Even (BE) analysis integrating learning that compares the relationship between production levels and returns, and allows for scenarios to be run in which we can alter:

• Yearly production size (1,000 units / 1,300 units / 1,500 units)
• W/corresponding Price elasticity (Sale Price of $200 / $160 / $120)
• Fixed Costs ($164,000 / $180,000)

The BE analysis should help Christina determine if the company will make a profit at the various production/sales targets as provided in the table above

1. Build the model that spans the possible production rates for the following year (first table).
2. Christina needs to determine whether or not, and under what conditions, the product will generate a profit.
3. Determine which combination of production/pricing will maximize profits.
4. Should WidgetsCo pursue this venture?

Transcribed Image Text:

-$200,000.00 -$150,000.00 -$100,000.00 Profit -$50,000.00 100 500 900 1300: 1700 2100 2500 2900 2900 3300 3700 4100 4500 4900 5300 F700 5700 6100: 9933 6500 6900 7300 7700 8100 8500 $0.00 0068 9300 9700 $50,000.00 Profit -$200,000.00 -$150,000.00 -$100,000.00 Profit -$50,000.00 100 500 900 1300: 1700 2100 2500 2900 2900 3300 3700 4100 4500 4900 5300 F700 5700 6100: 9933 6500 6900 7300 7700 8100 8500 $0.00 0068 9300 9700 $50,000.00 Profit

Answer rating: 100% (QA)

Lets build out the break even analysis model incorporating the learning rate Given Original fixed co... View the full answer