This is from the text Productions and Operations Management, 2nd Edition by Martin K. Starr (2008), Chapter 10, Question #7, page 408.
Zeta corporation is considering the advantages of automating a part of its production line. The company's financial statement follows:
Zeta Corporation
Total Sale $40,000,000
Direct Labor $12,000,000
Indirect Labor $2,000,000
Direct Materials $8,000,000
Depreciation $1,000,000
Taxes $500,000
Insurance $400,000
Sales Costs $1,500,000
Total Expenses $25,400,000
Net Profit $14,600,000
The report is based on the production and sale of 100,000 units. The operations manager believes that an additional investment of $5 million can reduce the variable costs by 30 percent. The same output quantity and qualities would be maintained. Using a 5-year straight-line depreciation of $1,000,000 per year, construct a breakeven chart.