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  • Alpha & Beta Corporation. Solution 1

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    Victoria Pridachina
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    Alpha has lower variable costs per unit than Beta but higher fixed costs. Alpha's breakeven point is 233,485 units while Beta's is 386,364 units. If Alpha increases its fixed costs by $300,000, its new breakeven point would be 301,822 units. For Alpha to breakeven selling at 20% less than its usual price per unit, it would need volume of 395,753 units. For Alpha to breakeven at a specific sales volume of 350,000 units, it would need to charge a minimum price of $7.48 per unit. The two companies' manufacturing costs would be equal at a volume of 145,161 units, above which Alpha has a cost advantage

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    Alpha and Beta_Solution

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    Alpha has lower variable costs per unit than Beta but higher fixed costs. Alpha's breakeven point is 233,485 units while Beta's is 386,364 units. If Alpha increases its fixed costs by $300,000, its new breakeven point would be 301,822 units. For Alpha to breakeven selling at 20% less than its usual price per unit, it would need volume of 395,753 units. For Alpha to breakeven at a specific sales volume of 350,000 units, it would need to charge a minimum price of $7.48 per unit. The two companies' manufacturing costs would be equal at a volume of 145,161 units, above which Alpha has a cost advantage

    Copyright:

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    Download as PPTX, PDF, TXT or read online from Scribd
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    14 views4 pages

    Alpha & Beta Corporation. Solution 1

    Uploaded by

    Victoria Pridachina
    Alpha has lower variable costs per unit than Beta but higher fixed costs. Alpha's breakeven point is 233,485 units while Beta's is 386,364 units. If Alpha increases its fixed costs by $300,000, its new breakeven point would be 301,822 units. For Alpha to breakeven selling at 20% less than its usual price per unit, it would need volume of 395,753 units. For Alpha to breakeven at a specific sales volume of 350,000 units, it would need to charge a minimum price of $7.48 per unit. The two companies' manufacturing costs would be equal at a volume of 145,161 units, above which Alpha has a cost advantage

    Copyright:

    Attribution Non-Commercial (BY-NC)
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    Flag for inappropriate content
    of 4

    Alpha & Beta Corporation.

    Solution
    1.
    Selling price
    Less variable costs:
    Direct materials
    Direct labor
    Variable overhead
    Sales commissions
    Contribution margin
    Fixed overhead
    Advertising and selling
    Total fixed costs
    Breakeven point (in units)

    Alpha
    $9.00

    Beta
    $8.00

    1.90
    1.25
    1.10
    0.36
    $4.39
    $675,000
    350,000
    $1,025,000
    233,485

    2.25
    2.40
    1.15
    0.00
    $2.20
    $450,000
    400,000
    $850,000
    386,364

    Alpha: $1,025,000 / $4.39 = 233, 485 units


    Beta: $850,000 / $2.20 = 386,364 units

    2. ($1,025,000 + $300,000) / $4.39 = 301,822 units


    3. $1,025,000 / ($4.39 - $1.80 ) = 395,753 units
    20% of $9.00 selling price = $1.80

    4.
    In (1), (2), and (3), you know price (P) and must solve
    for quantity (Q).
    Here, you know Q and must solve for the minimum P
    required to break even.
    Since QBE = FC/ CMU, it follows that
    CMU = FC / Q, or
    (P-VC) = FC / Q, i.e.,
    P ($4.25 + 0.04P) = ($1,025,000 / 350,000)
    0.96P - $4.25 = $2.93
    0.96P = $7.18
    P = $7.48

    5
    Let Q = the volume at which the manufacturing costs
    of Alpha and Beta are equal
    (Alpha:) 4.25 x Q + 675,000 = (Beta:) 5.80 x Q +
    450,000
    Q = (675,000 450,000)/(5.80 4.25) = 145,161
    Alpha has a competitive cost advantage when the
    volume is greater than 145, 161, but Beta has the
    advantage when the volume is less than 145,161

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