Question
The Figgis Agency makes spy phones (which are basically phones that have cool gadgets that help with spying). They currently produce one phone type (which
The Figgis Agency makes spy phones (which are basically phones that have cool gadgets that help with spying). They currently produce one phone type (which we will call the standard spy phone).
The standard spy phone sells for $500. Producing the standard phone requires 6 regular components and 4 hours of direct labor. Finally, it requires some variable overhead costs, which are driven by direct labor hours. For each hour of direct labor, Figgis incurs $10 in variable overhead costs.
Fixed costs are $1,200,000. Each regular component costs $10, and direct labor is $25 per hour.
Figgis is considering producing an enhanced version of their spy phone. The enhanced phone requires 3 regular components and 3 special components. It also requires 2 additional direct labor hours to assemble relative to the standard phone.
The special components cost $20 each. The costs of regular components and direct labor are the same as above.
The enhanced spy phone would sell for $900 per unit.
If Figgis sells both phone models, it expects that the product mix would be 75% standard phones and 25% enhanced phones. Total fixed costs would not change.
What is the breakeven point in total units (standard phones plus enhanced phones)?
What are the breakeven revenues?
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