A Manufacturing Firm Is Considering Three Alternatives for Automation AWhat Sales Price Must Be Charged for Alternative 1 to Anticipate

question 70

Essay

A manufacturing firm is considering three alternatives for automation. They anticipate the annual production volume to be 7,000 units. The costs for each alternative are as shown:
$\begin{array}{|l|c|c|c|}\hline &&{\text { Alternative }} \\\hline & 1 & 2 & 3 \\\hline \text { Annual Fixed Costs } & 50,000 & \$ 190,000 & \$ 350,000 \\\hline \text { Variable Cost/Unit } & \$ 0.65 & \$ 0.55 & \$ 0.40 \\\hline\end{array}$
a.What sales price must be charged for Alternative 1 to break even?
b.What sales price must be charged for Alternative 2 to break even?
c.What sales price must be charged for Alternative 3 to break even?

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Definitions:

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated before the next period's inventory is added.

Net Income

The net income of a company once all costs and taxes are subtracted from its revenues.

Overstatement

The exaggeration of income, assets, or worth in financial reporting.

Freight-out Costs

Expenses associated with the delivery of merchandise from a seller to a buyer; also known as shipping costs or delivery expenses.