The question goes like this :

**Particulars             Plant A              Plant B**  
Capacity utilization       70%                  60%

Sales                      150 mil.             90 mil.  
Variable costs             105 mil.             75 mil.  
Fixed costs                30 mil.              20 mil.  

We are asked to calculate (i) the break-even point of plants before merger (ii) BEP of plants after merger which will have an additional fixed cost of $2 million.

Here, BEP = (Fixed Costs/Contribution)* Sales
where, Contribution = Sales - Variable Cost

For the first part we can easily calculate the BEP using the formula.
However, for the second part we are required to take into consideration the capacity utilization also. (we scale it to 100% then solve)

Why do we do this only for the merged plant and not while calculating separately for different plants?



1 Answer 1

  1. BEP of plat A = 100

Bep of Plant B is 120

Answer 2) Total merged fixed cost= 30+20+2=52 mil Merged sales =150+90= 240 mil; Merged variable cost= 105+75= 180 mil; merged contribution = 240-180=60 mil BEP= (52/60)*240= 208 mil plant A= 208*70%=145.6 mil; Plant B= 208*30%=62.4 mil

  • $\begingroup$ This doesn't answer the bolded part of the question, could you add that to your answer? $\endgroup$
    – Bob Jansen
    Dec 13, 2018 at 14:27

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