Break-even analysis attempts to determine the volume of sales necessary for a manufacturer to cover costs, or to make revenue equal costs.It is helpful for setting prices, estimating profit or loss potentials,anddeterminingthediscretionarycoststhatshould beincurred.Thegeneralformulator calculating break-even is:

Break-evenUnits = /

In StratSim, total fixed costs can be broken into individual vehicle discretionary marketing expenditures, and fixed costs for plant and overhead.The selling price is the MSRP less the dealer discount,andthecostofmaterial sand labormakeup the variablecost.In this assignment,youwill allocate fixed costs across a portfolio of products and calculate break-even units for each product.

A firm's production capacity is 1.5 million units, with annual fixed costs of $3.2 billion in depreciation,plantmaintenance,corporatemarketing,andgeneral overhead.Additionalvalues for the three vehicles produced and sold by the firm are shown in the table below:

	Vehicle X	Vehicle Y	Vehicle Z
MSRP	$15,999	$20,999	$25,999
Dealer Discount	10%	12%	15%
VariableCost	$11,799	$13,599	$16,899
Adv.&Promo	$35million	$50million	$70million
Prev.UnitSales	400 thousand	600 thousand	300 thousand

Withtheaboveinformation,answerthefollowingquestionsaboutthebreak-even calculations:

1. Howwillyouallocate thefixedcosts acrossproductsandwhy?

2. Calculatethebreak-evenunitsfor each product,showingtheintermediatecalculationsfor each sectionofthefraction(i.e., VehicleX:Totalfixedcosts =$XXX,unitsellingprice=$XXX,andunit variable cost = $XXX, so break-even units = XXX).

3. Whatimpactdoesa10%dropinMSRPhaveonthebreak-evenpointfor each vehicle?

4. UsingtheoriginalMSRP, recalculatebreak-evenifadvertisingandpromotionexpense foreach product is doubled. (calculation)

5. Whatimpactmighttheintroductionofanew productinyourvehicleline haveonfixed costs and the break-even calculation?