break even analysis help please
can you please help me solve this problem? i mostly need help with letter b
Assignment 1 (HH 1.7 mod.) The Water Sports Company soon will be producing and marketing a new model line of motor boats. The production manager, Michael Jensen, now is facing a make-or-buy decision regarding the outboard motor to be installed on each of these boats. Based on the total cost involved, should the motors be produced internally or purchased from a vendor? Producing them internally would require an investment of $1 million per year in new facilities as well as a production cost of $3,000 for each motor produced. If purchased from a vendor instead, the price would be $3,350 per motor. Michael has obtained a preliminary forecast from the company’s marketing division that 2,500 boats in this line will be sold.
a. Use a spreadsheet to display and analyze Michael’s two options. Which option should he choose?
b. Michael realizes from past experience that preliminary sales forecasts are quite unreliable, so he wants to check on whether his decision might change if a more careful forecast differed significantly from the preliminary forecast. Determine a break-even point for the production and sales volume (below which the buy option is better and above which the make option is better).
c. Does this type of problem occur in the world? If so how what other factors might you want to consider?
Thank you so much. i really appreciate it
Re: break even analysis help please
Quote:
Originally Posted by
lola233 
can you please help me solve this problem? i mostly need help with letter b
Assignment 1 (HH 1.7 mod.) The Water Sports Company soon will be producing and marketing a new model line of motor boats. The production manager, Michael Jensen, now is facing a make-or-buy decision regarding the outboard motor to be installed on each of these boats. Based on the total cost involved, should the motors be produced internally or purchased from a vendor? Producing them internally would require an investment of $1 million per year in new facilities as well as a production cost of $3,000 for each motor produced. If purchased from a vendor instead, the price would be $3,350 per motor. Michael has obtained a preliminary forecast from the company’s marketing division that 2,500 boats in this line will be sold.
a. Use a spreadsheet to display and analyze Michael’s two options. Which option should he choose?
b. Michael realizes from past experience that preliminary sales forecasts are quite unreliable, so he wants to check on whether his decision might change if a more careful forecast differed significantly from the preliminary forecast. Determine a break-even point for the production and sales volume (below which the buy option is better and above which the make option is better).
c. Does this type of problem occur in the world? If so how what other factors might you want to consider?
Thank you so much. i really appreciate it
Hi lola233! :)
Suppose x is the unknown number of boats at which a break-even occurs.
When produced internally, the cost is $1 million per year + $3,000 * x.
When bought, the cost is $3,350 * x.
Break even occurs when these costs are equal: $1 million per year + $3,000 * x = $3,350 * x.
Can you solve x from this equation?
Re: break even analysis help please
