Question

1. Southwestern Pipe Supply (SPS) is a distributor of pipes, pipe lining and coating. SPS buys couplings from Baker Corp. for $12 each. It costs $3000 to store couplings at the warehouse (independent of the number of units stored, similar to rent). A contractor is willing to buy the couplings at $15 each.
   1. How many couplings should SPS sell to the contractor before they breakeven. Show all calculations. Specify units.
   2. How much would be the net income or profit if SPS sold 1350 couplings to the contractor?

On a separate graph paper, provide the graphical representation of the breakeven point. Provide appropriate labels and numerical values for the X and Y axes, cost and revenue lines, and the breakeven point

Answer 1

The breakeven point formula is = Fixed cost / (Selling price – Variable cost)

Profit formula = (Selling price – Variable cost)*Number of units – Fixed cost

Fixed cost = $3000

Selling price = $15

Variable cost = $12

The breakeven point = 3000/(15-12) = 1000 units

In case 1350 units are sold then the profit will be

Profit = (15-12)*1350 – 3000 = $1050

The chart is shown below

Chart 1 : x x cronimnos e as A B C D Ε G H K L M N O P Q R т 200 200 Cost-Revenue - Cost — Revenue 30000 25000 Units Cost Revenue 4200 1500 5400 3000 6600 4500 7800 6000 9000 7500 10200 9000 11400 10500 12600 12000 900 13800 13500 1000 15000 15000 1100 16200 16500 1200 17400 18000 1300 18600 19500 1400 19800 21000 1500 21000 22500 1600! 22200 24000| 800 20000 15000 Series "Revenue" Point "1000" Value: 15000 10000 5000 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 41 ... Sheet1477 Sheet1479 Sheet1478 Sheet1480 Sheet1481 Sheet1482 + READY AVERAGE: 8933.333333 COUNT: 51 SUM: 428800 0 + 100%