CASE: 1. Santro electronics is considering two locations for its audio equipment factory. One location option is Ahmedabad and other is Chenni. At Ahemdabad, the fixed cost is estimated at Rs. 1 million and variable cost at Rs. 1200 per audio equipment manufactured. At Chenni, fixed cost is estimated at Rs. 1.2 million and variable cost at Rs. 1100 per audio equipment manufactured. Selling price of equipment will be Rs. 3000 per piece. Decide which location is best for the factory using break-even analysis
BREAK EVEN ANALISIS
Given Data:
|
Location
|
Ahmedabad
|
Chenni
|
|
Fixed Cost
|
1000000/-
|
1200000/-
|
|
Variable cost
|
1200 p. u
|
1100 p. u
|
|
Selling Price
|
3000/-
|
3000/-
|
From above we have:
Ahmedabad
Contribution= Selling price – Variable Cost.
Contribution= 3000- 1200
Contribution= 1800
Break-even-point= 1000000/1800.
= 555 units
So, in this location we will be in no profit no loss condition when we will produce 555units.
Location Chenni:
Contribution= Selling price – Variable Cost.
Contribution= 3000- 1100
Contribution= 1900
Break-even-point= 1200000/1900.
= 631 units
So, in this location we will be in no profit no loss condition when we will produce 631units.
Analyzing both we see that BEP of Ahmedabad comes first at 555 units, santro electronics should go for Ahemadabad as BEP comes earlier than chenni