White-N-Wheat Bread Company has asked for your help in comparing its present computer system with a new one its board of directors would like to see implemented. Proposed system and present system costs are as follows:
Year Proposed System Costs Present System Costs
Year 1
Equipment Lease $20,000 $21,500
Salaries 40,000 50,000
Overhead 4,000 13,000
Development 30,000 —
Year 2
Equipment Lease $20,000 $10,500
Salaries 43,000 55,000
Overhead 7,000 3,300
Development 12,000 —
Year 3
Equipment Lease $20,000 $10,500
Salaries 36,000 60,000
Overhead 4,900 3,600
Development — —
Year 4
Equipment Lease $20,000 $10,500
Salaries 39,000 66,000
Overhead 5,500 4,000
Development — —
a. Using break-even analysis, determine the year in which White-N-Wheat Bread will break even with these two strategies.
b. Graph the costs and show the break-even point.
