Break even question

Question

why does it calculate the BEP by the cost difference, instead of calculating each BEP and compare one by one? I still don't understand the logic behind it

Answer 1

Hi there,

I think you're saying why don't we calculate the BEP for 1 center and the BEP for 5 centers? And then compare?

If that's the case, yes, I agree! The author here got “cute” which can sometime be helpful (shortcuts can be faster), but can also be dangerous (mistakes).

In this particular instance I would calcualte the BEPs seperately and compare.

Answer 2

Hi there,

I think this is an interesting question that may be relevant for many people. I would be happy to share my thoughts on it:

Given the question is whether to have 1 or 5 distribution centers, it's enough to see with what option you'll reach the break-even point (BEP) sooner. Since distribution centers are cost centers, you can do so by comparing the relative fixed cost advantage of one option with the running cost advantage of the other option.
However, you could also answer the question by calculating the BEPs separately and comparing them, where you would see a difference in BEP of about 9 years.

If you would like a more detailed discussion on how to best prepare your upcoming interviews, please don't hesitate to contact me directly.

Best,

Hagen