Question

EXERCISE 5-3 Prepare a Profit Graph L05-2 Jaffre Enterprises distributes a single product whose selling price is $16 per unit and whose vari- able expense is $11 per unit. The company's fixed expense is $16,000 per month. Required: 1. Prepare a profit graph for the company up to a sales level of 4,000 units. 2. Estimate the company's break-even point in unit sales using your profit graph.

Answer 1

1)

80,000 Break event pont Cast and Revenues 70,000 60.000 50,000 Sales 4000 x 16 - 64,000 Total 1 Coss, 60,000 1 40,000 30,000 20,000 • Fixed Costs 16,000 10,000 200 400 600 0 1000 1200 140 160 180 2000 2200 2400 2600 2800 tooo beso a 360 y doc No. of units (Sales)

Variable cost = 4000 * 11 = 44,00 , Total costs = variable cost + fixed cost = 60,000

Total cost line starts at the point where fixed costs line starts and gap between fixed costs and total cost is the variable cost.

2) Break even point is the point at which there will be neither profit nor loss i.e., cost = sales revenue

   From the above diagram , total cost line and sales line meets at 3200 units .

So, Break even point in units is 3,200 units