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, and determining the discretionary costs that should be incurred. The general formula for calculating break-even is:

Break-even Units = / ( )

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, and the cost of materials and labor make up the variable cost. In this assignment, you will allocate fixed costs across a portfolio of products and calculate break-even units for each product.

A firms production capacity is 1.5 million units, with annual fixed costs of $3.2 billion in depreciation, plant maintenance, corporate marketing, and general overhead. Additional values 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%
Variable Cost	$11,799	$13,599	$16,899
Adv. & Promo	$35 million	$50 million	$70 million
Prev. Unit Sales	400 thousand	600 thousand	300 thousand

1. How will you allocate the fixed costs across products and why?
2. Calculate the break-even units for each product, showing the intermediate calculations for each section of the fraction (i.e., Vehicle X: Total fixed costs = $XXX, unit selling price = $XXX, and unit variable cost = $XXX, so break-even units = XXX).
3. What impact does a 10% drop in MSRP have on the break-even point for each vehicle?
4. Using the original MSRP, recalculate break-even if advertising and promotion expense for each product is doubled.
5. What impact might the introduction of a new product in your vehicle line have on fixed costs and the break-even calculation?