Wilson Partners manufactures thermocouples for remote temperature monitoring of electronics applications. The current system has a fixed cost of $400,000 per year and a variable cost of $10 per unit. Wilson sells the units for $14 each. A newly proposed system will add on-board features that allow the revenue to increase to $16 per unit, but the fixed cost will now be $600,000 per year. The variable cost of the new system will be based on a $48 per hour rate with 0.2 hour dedicated to produce each unit. Determine the annual breakeven quantity for the (a) current system, and (b) proposed system.
What will be an ideal response?
(a) Current: QBE = 400,000/(14-10) = 100,000 units
(b) New: QBE = 600,000/[16-48(0.2)] = 93,750 units
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