# Variable cost

1 January 2017

Separate the expenses between fixed and variable costs per unit. Using this information and the sales price per unit of \$8, compute the break-even point. 5-3. Solution: Therapeutic Systems Fixed CostsVariable Costs (per unit) Rent\$120,000 Factory labor\$1. 50 Executive under contract\$112,000 Raw materials. 70 \$232,000\$2. 20 4. Break-even analysis (LO2) Draw two break-even graphs—one for a conservative firm using labor-intensive production and another for a capital-intensive firm. Assuming these companies compete within the same industry and have identical sales, explain the impact of changes in sales volume on both firms’ profits. -4. Solution: Labor-Intensive and capital-intensive break-even graphs The company having the high fixed costs will have lower variable costs than its competitor since it has substituted capital for labor. With a lower variable cost, the high fixed cost company will have a larger contribution margin. Therefore, when sales rise, its profits will increase faster than the low fixed cost firm and when the sales decline, the reverse will be true. 5. Break-even analysis (LO2) Eaton Tool Company has fixed costs of \$200,000, sells its units for \$56, and has variable costs of \$31 per unit. a.

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