Question

2. Compute the answers to the questions below: a. If total fixed costs are $20,000, the selling price is $12, and the variable cost (per unit) is $7, what is the BEP in units? (#) b. In relation to Question #2a, what is the amount of total variable costs at BEP? ($) c. In relation to Question #2a, what will be the sales at BEP? ($) d. In relation to Question #2a, if you as the manager desire a $100,000 profit this year, how many units will you have to sell in order to reach this objective? (#)

Answer 1

Given:

Total fixed cost = $20,000

Selling price per unit = $12

Variable cost per unit =$7

(a)

Break Even point in Units = Total Fixed cost Selling price per unit – Variable cost per unit

Break Even point in Units 20,000 20,000 12 - 7 5 = 4,000 units

(b)

Total Variable cost = Variable cost per unit * Number of units

Total Variable cost = 7 * 4,000 = $28,000

(c)

Sales = Selling price per unit * Number of units

Sales = 12 * 4,000 = $48,000

(d)

Profit = Total revenue – Total cost

Here, Total revenue = Selling price per unit * Number of units

and Total cost = Total fixed cost + Total Variable cost

where Total Variable cost = Variable cost per unit * Number of units

Let, X is the number of units need to sell to achieve profit of $100,000

The formula of the profit will be as follows

Profit = (Selling price per unit * X) – [Total fixed cost + (Variable cost per unit * X)]

100,000=(12X) – [20,000+(7X)]

100,000=12X – 20,000 – 7X

100,000=5X – 20,000

5X=100,000+20,000

5X=120,000

X=120,000/5=24,000

In order to achieve target profit, 24,000 units need to be sold.