Extensions of the CVP Model—Semifixed (Step) Costs

Cesar’s Bottlers bottles soft drinks in a factory that can operate either one shift, two shifts, or three shifts per day. Each shift is eight hours long. The factory is closed on weekends. The sales price of $2 per case bottled and the variable cost of $0.90 per case remain constant regardless of volume. Cesar’s Bottlers can increase volume by opening and staffing additional shifts. The company has the following three choices:

 

Daily Volume Range

Total Fixed Costs

 

(Number of Cases Bottled)

per Day

1 Shift

(0–2,000)

$1,980

2 Shifts

(2,001–3,600)

3,740

3 Shifts

(3,601–5,000)

5,170

Required

a. Calculate the break even point(s).

b. If Cesar’s Bottlers can sell all the units it can produce, should it operate at one, two, or three shifts? Support your answer.