Question 9 75 points Save Ansv An engineering firm measures

Question 9 7.5 points Save Ansv An engineering firm measures its output in standard service hours (SSH) per unit, which is a function of the skill levels of its engineers (skill levels range from an engineering intern to an engineering scientist). The variable cost is $60 per SSH and the fixed cost is $2,000,000 per year. The firm charges $100 for each service per hour. Assume the maximum hours the firm operates (that is the output) is 170,000 per year. a) Compute the break-even point in SSH b) At what percentage does the break-even occur as compared to the maximum hours the firm operates? c) What is the percentage reduction in break-even point if the fixed cost can be reduced by 20%? d) Does the break-even point increase or decrease if the charges per service is increased by 10%? e) What is your recommendation? Should the firm reduce the fixed cost or increase the price? Attach File Browse My Computer Browse Content Collection

Solution

Answer for a)

Breakeven point when Revenue equals cost

services per hour*charge per hour=Revenue

100*x

Cost=60x+2,000,000

100x=60x+2,000,000

40x=2,000,000

x=50,000

Ans for b)

50000/170000=5/17=29.4%

Ans c)

If FC is reduced by 20% then FC=1,600,000

100x=60x+1600000

x=1600000/40

x=400000

Hence Breakeven reduces by 20%

Ans d)

If charge per SSH becomes 110 then

110x=60x+2000000

50x=2000000

x=400000

Breakevn point will decrease by 20%

Ans for e)

They should reduce fixed cost