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Homework answers / question archive / A factory to be established of Fixed cost of (A), expecting that the price per unit is (B) and variable cost is (C) OR
A factory to be established of Fixed cost of (A), expecting that the price per unit is (B) and variable cost is (C) OR. Use this information to answer the following: [26marks] a. Calculate breakeven in quantity 8marks b. Calculate beak even in money 4marks c. Draw breakeven chart. 4marks d. Indicate whether 150000 and 200000 in loss or profit area. 4 marks e. What would happen to the breakeven point if the fixed cost decrease of 7%. 6marks A Fixed cost 52000 B Price/unit 1.85 Variable costunit 1.48
Break-even is a situation is where the seller makes neither a profit nor a loss by selling his product. At this level of quantity and price, the total revenue just equals the total cost.
Given TC or total cost = 52000 + 1.48q, P = AR = 1.85, we can calculate TR = AR x q = 1.85q
a. breakeven quantity can easily be found out by equating TC and TR.
52000 + 1.48q = 1.85q, or 0.37q = 52000, or q = 52000/0.37 = 140540.54 which is approximately 140540 is the break even quantity.
b. breakeven in money is the price multiplied by breakeven quantity
breakeven in money = 1.85 x 140540 = 259999 which is approximately 260000.
c. Following is the chart
d. Since both 150000 and 200000 are greater than 140540, they both lie in profit area. This means that if the seller sells any quantity more than 140540, he will make a profit,
e. A 7% decrease in fixed costs means fixed costs now are 48360. So now breakeven quantity can be calculated as,
TC = 48360 + 1.48q, TR = 1.85q
48360 + 1.48q = 1.85q, or 0.37q = 48360, or q = 48360/0.37 = 130702.70
This means a reduction is fixed costs reduces the quantity that the seller must produce to break-even.
please see the attached file for the complete solution.
