This paper applies breakeven analysis to Cisco's Outdoor Wireless Access Points, specifically examining the potential impact of switching to a less expensive weatherproof casing supplier. Using the Cisco 1310 Aironet Access Point as the unit of study, the paper estimates variable costs, draws on Cisco's FY2011 Router division revenue to approximate fixed costs, and calculates breakeven unit volumes under both the current and proposed supplier scenarios. The analysis finds a modest reduction in the breakeven point under the new supplier and discusses when the switch would be advisable, including considerations of product quality and customer satisfaction.
The paper demonstrates applied quantitative reasoning: translating real financial data (Cisco FY2011 revenues) into model inputs through reasoned estimation, then using the standard breakeven formula to derive actionable business insights. This bridges textbook formulas and real-world managerial decision-making.
The paper opens by establishing context (Cisco's product line and the proposed supplier change), then builds up cost assumptions before formally defining breakeven variables. Calculations follow, and the paper closes with a brief but substantive recommendation that integrates both quantitative results and qualitative risk factors. The structure mirrors a standard managerial analysis memo.
This paper applies breakeven analysis to one of Cisco's Wireless Solutions for small business. The unit of measurement under consideration is the sale of individual Outdoor Wireless Access Points — devices that allow companies to extend their wireless networking capabilities outdoors to courtyards, porches, balconies, and parks. Outdoor Wi-Fi access points have also been used by civic organizations to create "wireless clouds" in cities such as Portland, OR and Atlanta, GA.
The specific activity being analyzed is a possible change of supplier for the weatherproof plastic casing of the outdoor access points. This change would reduce each unit's variable cost by $5, and the goal of this analysis is to determine how that reduction affects the breakeven volume for Cisco's Router division.
The retail sale price of a Cisco 1310 Aironet Access Point is $849.00 through Tiger Direct. Fixed costs for this item cover divisional overhead, while variable costs include electronic components, research and development, casing, packaging, and all associated manufacturing and transportation costs. Although the profit margin for consumer electronics is generally low, it may be higher in the case of enterprise-level electronics such as those Cisco manufactures.
The variable cost for each unit is estimated at roughly 40% of the retail price, or $340.00. In the current financial year, Cisco's Router division brought in $5,367 million in revenue — roughly 17% of overall company revenue. Making a conservative assumption that the Router division's overhead represents 20% of all operations-related overhead in FY2011 yields an estimated total fixed cost for that division of $394.6 million (Cisco, 2011).
According to the standard breakeven equation, several variables must be defined before calculations can be performed. The notation used here distinguishes between the current cost structure (subscript 1) and the projected cost structure after the casing supplier change (subscript 2):
P = Unit sale price = $850.00
V1 = Unit variable cost (current supplier) = $170.00
V2 = Unit variable cost (new supplier) = $165.00
TFC = Total fixed costs = $394,600,000.00
The $5 difference between V1 and V2 reflects the cost savings expected from switching to the alternative casing manufacturer. All other inputs remain constant between the two scenarios.
Applying the breakeven formula — where the breakeven quantity equals total fixed costs divided by the contribution margin (unit price minus unit variable cost) — yields the following results:
Under the current casing supplier, the breakeven point is 773,725 units. Under the less-costly casing supplier, the breakeven point falls to 766,214 units. This represents a reduction of approximately 7,511 units, meaning Cisco would need to sell fewer units to cover its fixed costs if it adopts the new supplier.
Current sales figures for the Aironet Access Point are unknown, but they are not likely to be close to 700,000 units. If the Router division projects that sales are likely to drop, it should switch to the new casing supplier as a matter of course in order to preserve revenues. However, if Cisco suspects that the change would lead to a higher rate of customer returns, customer dissatisfaction, or lower product quality, it should assess these factors as part of the effective variable cost of the item. The quantitative benefit of the supplier switch is modest, and qualitative risk considerations should carry significant weight in the final decision.
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