Question

6. ABC Itd. Estimates show that the variable cost of manufacturing a new product will be $60 per unit. Based on market research, the selling price of product is to be $120 per unit and variable selling price is expected to be $20 per unit. The fixed cost applicable to new product are estimated to be $2800 per period and capacity is 100 un its per period. For the above perform a break even analysis showing a) An algebraic statement of the revenue function a. b. the cost function b) computation of the break even point a. in units b. in sales dollars as a percent of capacity с. 8 c) A detailed break even chart

Answer 1

a) Albebraic statment of

• Revenue function: Total Revenue = Selling Price * Units Sold or TR = 120 * U; where 0<=U<=100
• Cost Function: Total Cost = Fixed Cost + Variable Cost or TC = 2800 + (60+20)*U; where 0<=U<=100

b)

• BEP(units) = 2800/(120 - (60+20)) = 70 units
• BEP (Sales) = 70*120$ = $ 8400
• BEP (%) = 70/100*100 = 70%

c) BEP Chart:

Units	Total Revenue	Total Cost
10	120*10 = 1200	10*80+2800 = 3600
20	120*10 = 2400	20*80 + 2800= 4400
30	120*30 = 3600	30*80 + 2800= 5200
40	120*40 = 4800	40*80+2800 = 6000
50	120*50 = 6000	50*80+2800 =6800
60	120*60 = 7200	60*80+2800 =7600
70	120*70 = 8400	70*80+2800 =8400
80	120*80 = 9600	80*80+2800 =9200
90	120*90 = 10800	90*80+2800 =10000
100	120*100 = 12000	100*80+2800 =10800

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14000 12000 10000 8000 6000 Units Total Revenue - Total Cost 4000 2000 ot 1 2 3 4 5 6 7 8 9 10