STRATSIM Break-even AnalysisBreak-even analysis attempts to determine the volume of sales necessary for a manufacturer to covercosts, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials,and determining the discretionary costs that should be incurred. The general formula for calculatingbreak-even units is:Break-even Units = ? In StratSim, total fixed costs can be broken into discretionary marketing expenditures, and fixed costsfor plant and overhead. The selling price is the MSRP less the dealer discount, and the cost of materialsand labor make up the variable cost. In this assignment, you will allocate fixed costs across a portfolio ofproducts and calculate the break-even units for each product.A firm’s production capacity is 1.5 million units, with annual fixed costs of $3.2 billion for depreciation,plant maintenance, corporate marketing, and general overhead. Additional values for the three vehiclesproduced and sold by the firm are shown in the table below: MSRPDealer DiscountVariable CostAdv. & Promo.Prev. Unit Sales VEHICLE X$15,99910%$11,799$35 million400 thousand VEHICLE Y$20,99912%$13,599$50 million600 thousand VEHICLE Z$25,99915%$16,899$70 million300 thousand 1. How will you allocate the fixed costs across the products? 2. Calculate the break-even units for each product, showing the intermediate calculations for theallocated fixed costs and selling price (dealer invoice). Continued on Next Page . . . STRATSIM(Cont’d.)3. What impact does a 10% drop in MSRP have on the break-even point for each vehicle? 4. Using the original MSRP, recalculate break-even if advertising and promotion expense for eachproduct is doubled. 5. What impact might the introduction of a new product in your vehicle line have on fixed costs andthe break-even calculation?
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