Break Even Point

2021-05-14 15:16:38
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The break-even point is meant to calculate the margin of safety by making a comparison of the amount of revenues that must be sold to cover the fixed costs that are associated with the making of the sales. In the present case, the break-even point will be used to determine the particular time that the units of DeTour System will start making profits. This will be done by looking at the cost of one unit and the fixed costs involved. The following chart demonstrated the costs of the DeTour System.

The above chart shows the price of the items that will be involved in the production of the Detour system. In this regard, two very important costs must be included in the chart. These are the fixed and variable costs. The fixed costs are those of the premises where the production of the systems will take place as well as the machineries that will be used in the production of such a system.

Notably, this is the first time that these systems will be produced. As such, the costs might either be overestimated or underestimated. In the variable costs are those of the raw materials that will be used. Specifically, the cost of the a Lithium Battery which can last for 10 years will be one raw material that will be costly. Additionally, the material that is used in making the tag is non-corrosive and, therefore, costly (Svistunova, & Shlyamnev, 2010). The costs of the labor, which includes the professionals that have the expertise in the production of such tags, will be costly. Specifically, the technocrats involved will mean that the variable costs will be hiked. The cost of advertising the products to the consumers who are the former militaries will also be an addition to the cost that will be involved before the product gets to the market. More importantly, the costs of delivery of the tags to wherever the ex-military officers will be is an additional cost.

The break-even point for the DeTour System should be calculated by the fixed costs of producing the system divided by the contribution margin per unit. As such, the break-even point would be calculated by diving the total fixed costs ($20,000,000) by the cost of one unit ($399). This gives the break-even point as 50126. The following chart shows the three different prices that one unit of the DeTour System Can be sold.

The reason as to why I chose that break-even point is due to the fixed costs that are required in the production of the system. This being the first time that the system is being produced, there is a probability that the costs of the manufacture will go up. As such, there is no certainty on the exact costs that will be incurred in the production of the system (Soh, Markus & Kim, Huat, 2006). Specifically, it will be the first time that the system will be produced. As such, the cost of production are high as there are not predetermined and tested raw materials, which are cheaper. However, in future, there might be alternatives that will lower the costs.

References

Soh, C. Markus, M. L. & Kim, Huat, G. (2006). ELECTRONIC MARKETPLACES AND PRICE TRANSPARENCY: STRATEGY, INFORMATION TECHNOLOGY, AND SUCCESS. MIS Quarterly, 30(3), 705-723.

Svistunova, T., & Shlyamnev, A. (2010). Development and use of corrosion-resistant steels and alloys. Metal Science & Heat Treatment, 52(7/8), 300-308. doi:10.1007/s11041-010-9272-z

 

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