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NR 630 WEEK 6 ASSIGNMENT- BREAK-EVEN ANALYSIS “Break even occurs when total revenues equal costs” (Zimmerman, 2014). After commuting the “break-even” calculations for LaTricia Jones’ new toy for both the smaller and larger facility I would recommend staying with the smaller facility. LaTricia plans on selling each toy for $30 a piece. The variable cost (VC) for the small facility is $5 per toy and $4 per toy for the larger facility. The fixed costs (FC) for the small facility is stated as $1,300 and $2,580 for the larger facility. “The costs incurred when there is no production are called fixed costs” (Zimmerman, 2014). Some examples of fixed costs are property taxes, insurance, plant managers, security, etc. This incurred cost regardless of production and number of sales. “Variable costs are the additional costs incurred when output is expanded” (Zimmerman, 2014). For example, when a company expands their production of goods or services, it must also increase other aspects of the production as well such as purchasing more parts, hiring more employees, using more power, etc. The costs of production changes with expansion or reduction, thus it is considered variable costs. Break-even was calculated as: Price Per Unit (P) x Quantity (Q) – Variable Cost Per Unit (VC) x Quantity (Q) – Fixed Cost (FC). After computing the break-even calculations it would determined that the small facility would need to sell 52 toys to break-even and the larger facility would need to sell approximately 100 toys to break- even. Due to this analysis and calculations, I would recommend staying with the smaller facility for production. This makes sense considering a larger facility would mean there would be a significant increase in fixed costs such as rent, insurance, etc. LaTricia also plans to continue to sell each toy at the same price even with a larger facility which is also another factor that requires her company to sell more toys in order to break-even. Overall, the numbers and calculations such breaking-even with a smaller facility will happen much quicker. References: Zimmerman, J. L. (2014). Accounting for decision making and control (8th ed.). New York, NY: McGraw-Hill.

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