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?