Break-even analysis
1. A firm sells a product at RM35 per unit. The variable cost fort he product is RM30 per unit and its fixed cost is
RM70000, What is quantity of the product that firm must sell in order to break-even?
35*X=70000+30*X
X=14000
Capacity Utilization
2. A bakery’s design capacity is 30 custom cakes per day, effective capacity is 24 cakes per day. Currently the
bakery is producing 28 cakes per day. What is the bakery’s capacity utilization relative to both design and
effective capacity?
Design capacity utilization =28/30
Effective capacity utilization = 24/28
3. During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization
recorded was 120 units per week. What is this plant’s capacity utilization rate?
83/capacity / 120/capacity =83/120 =0,691
Decision tree
4. A glass factory specializing in crystal is experiencing a substantial backlog, and the firm's management is
considering three courses of action:
A) Arrange for subcontracting,
B) Construct new facilities.
C) Do nothing (no change)
The correct choice depends largely upon demand, which may be low, medium, or high. By consensus,
management estimates the respective demand probabilities as .10, .50, and .40.
The management also estimates the profits when choosing from the three alternatives (A, B, and C) under the
differing probable levels of demand. These costs, in thousands of dollars are presented in the table below:
A
B
C
0.1
Low
10
-120
20
0.5
Medium
50
25
40
0.4
High
90
200
60