Question

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4. Auto Shoppe is considering the purchase of a new engine computer code reader for $45,500. Auto Shoppe can charge $80 for the service of reading the codes from a single car engine, while the actual cost of the reading would only be $15 per car engine. a. How many cars would need their engine computer codes read by Auto Shoppe for it to break-even on this purchase? b. Suppose that the manager of Auto Shoppe is concerned about this purchase, and has stated that if Auto Shoppe were to buy the new engine computer code reader, “..the machine needs to pay for itself by the time we use it to read the codes of 500 car engines.” The manager says this is because, “...those sorts of engine computer code readers go out of date very quickly, so if we don't get our money back soon, we will probab just wind up replacing the machine before it ever breaks even.” What would Auto Shoppe need to charge for the service of reading each car engine, to break-even when it reads the codes from 500 car engines?

Answer 1

Break-even analysis is a technique by which business identify the sales volume when the total cost and total revenue is equal. So, the company neither makes profit nor loss.

Break-even analysis is important for business because it help in drafting good business plan by determining cost structure and the volume required to cover the cost in order to make profit.

Finced cast = 845,500 Variable cost = g 15/ car engine Revente per unit = 8800 Total cost = Finced cast & variable cather unit x volume) Total revenue = Revenue per unit x volume a. Let the volume be ne TC = 45500 + 150 TK : 8m TP - IC 8000 = 45500 + 15m 80 n - 15n0 = 45500 65 n = 45500 rc = 45500 65 = 700 units Ensurer bo let the revenue per unit se 10 = 45500'+ (15 x 500) = 45500 + 7500 = 53000 IR : 500 500 TR : TC 500 20 = 53000 ne: 53000 500 - 15 106 Auswen