1. A manufacturer produces three types of humidifiers. Theretail price of Humidifier Regular (HR) is $60 with variable costsof $20. Humidifier Advanced (HA) sells for $200 for its advancedfeatures. This model’s variable costs are $80. Humidifier Simple(HS) is a simplified version and only sells for $25 with variablecosts of $15. The manufacturer has machines and facilities worth$320,000 annually. The sales data show that 1000 units of HR, 2000units of HA, and 10,000 units of HS was sold last year. Calculatethe break-even point of the firm. The firm has some idle capacityat these volumes, and chooses to cut the selling price of HR from$60 to $45, believing that its sales volume will rise from 1000units to 2500 units. What is the revised break-even point?
2. Leonard’s company purchases a window hardware from William’sHardware Co and sells to the market. Leonard is also consideringmanufacturing the product internally. William’s Hardware Co.charges $4 per unit, with a minimum order of 3,000 units. IfLeonard manufactures the product in-home, the process setup feecould be $15,000 and then $1.82 per unit for labor andmaterials.
a) Draw a graph illustrating the crossover (or indifference)point.
b) Determine the number of units where either choice has thesame cost.