An organization can purchase equipment for $450,000 in order to make an item for $20 per unit. A supplier can produce the same item for $25. If the item will sell for $35 per unit, what is the break-even point for the item?
An organization can purchase equipment for $450,000 in order to make an item for $20 per unit. A supplier can produce the same item for $25. If the item will sell for $35 per unit, what is the break-even point for the item?
To find the break-even point, we first need to determine the cost savings achieved by manufacturing the item in-house rather than purchasing it from the supplier. The cost to produce in-house is $20 per unit, while the supplier price is $25 per unit. This results in a cost savings of $5 per unit. The organization must recoup the initial investment of $450,000. To find the break-even point, we divide the initial investment by the cost savings per unit: $450,000 / $15 per unit = 30,000 units. Thus, the break-even point is 30,000 units.
=35-20=15, 450/15=30