Charlie's data is in the table below. Assume that he is just producing a single product, a replica of  producing a single product, a replica of an 18th century straight chair. Charlie charges $325 each for the chairs, which is in line with commercial organizations that produce similar reproductions of furniture from the 1700s.

Material includes just the cost of hardwood lumber. Fasteners, glue, paint, stain and consumable supplies like sandpaper are all included in supplies. The utility bill for the shop covers all utilities, and the insurance policy covers his tools and inventory of hardwood and finishing materials. The commission is paid to the dealer to keeps one of Charlie's chairs in his showroom and takes orders for Charlie. Charlie says his  figure for depreciation on his tools is a "good estimate." "Cleanup" is actually a salary paid to Charlie's grandson Jeff to help around the shop after school and on weekends. In addition to cleaning up the shop, Jeff helps out when Charlie needs a "third hand" and runs errands. Charlie assures us that the only real constraint on his production is his own time, rather than the capacity of his equipment or the amount of space he has available. With Charlie's agreement, we assume that the relevant range will cover production levels up to 10 units per month; however, it is unlikely that Charlie would be able to produce that many. Let's figure out Charlie's break even point. Click "next."

Copyright © 2004 Gerald M. Myers. All rights reserved. This site has been developed as aid to instructors and students in managerial accounting. The scenarios contained herein are not intended to reflect effective or ineffective handling of managerial situations. Any resemblance to existing organizations is purely coincidental.

Last modified: August 03, 2005