Week 6 Assignment

Peyton Smith is planning to make a unique toy that promises to keep small children entertained for hours! Peyton believes that parents everywhere will want to buy this toy. With a selling price of $25, Peyton 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 scenarios have been determined:

• The rent for a small facility will be $2,500 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 $4,500 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.

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.