StratSim Breakeven Analysis

Break-even analysis attempts to determine the volume of sales necessary for a manufacturer to cover costs, or to make revenue equal to costs. It is helpful in setting prices, estimating profit or loss potentials, and determining the discretionary costs that should be incurred. The general formula for calculating break-even units is:

Break-even Units = ???????????????????? ???????????????????? ????????????????????/ [???????????????? ???????????????????????????? ???????????????????????????????????? ???????????????????????????????? ????????????????]

In StratSim, total fixed costs can be broken into programmed marketing expenditures (discretionary) and fixed costs for plant and overhead.

The manufacturer's selling price (dealer invoice) is the MSRP less the dealer discount.The cost of materials and labor make up the variable cost. In this assignment, you must allocate fixed costs across a portfolio of products and calculate the break-even units for each product.

The firm's production capacity is 1.5 million units, with annual total fixed costs of $3.2 billion for plant depreciation, plant maintenance, and general overheads.

Additional information about the three vehicles that make up the firm's product portfolio is shown in the table below:

Vehicle Type X

Vehicle Type Y

Vehicle Type 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

400,000

600,000

300,000

1.Calculate the break-even units for each vehicle type, showing the intermediate calculations for the allocated fixed costs and manufacturer's selling price (dealer invoice).Notetotal fixed costs per vehicle must include a vehicle's allocated portion of annual fixed costs, with the allocation based on a vehicle type's percent of total previous unit sales.

2.Calculate the break-even units for each vehicle type if advertising & promotion costs for each vehicle type was doubled, with all other costs and inputs remaining unchanged from #1 above.