Question

Lucid Images Ltd manufactures premium high definition televisions. The firm's fixed costs are $4,000,000 per year. The variable cost of each TV is $2,000, and the TVs are sold for $3,000 each. The company sold 5,000 TVs during the previous year. (In the following requirements, ignore income taxes) Required: Treat each of the requirements as independent situations: a) Calculate the break-even point in units. (2 marks) b) What will the new break-even point be if fixed costs increase by 10 per cent? (2 marks) c) What was the company's net profit for the previous year? (4 marks) d) The sales manager believes that a reduction in the sales price to $2,500 will result in orders for 1,200 more TVs each year. What will the break-even point be if the price is changed? (2 marks)

Answer 1

Answer Page No 0 fixed cost Break even point in units contribution unit $4,000,000 $3000 – $2000 per 2 4,000,000 1000 4000 units If the fixed costs increases by the 10%, New break - even point fined cost Contribution per unit 4,000,000 X (1+107.) $ 3000 - $2000 4,400,000 1000 14400 units Sales = 5000 TVO X $ 3000 $ 15,000,000 Variable cost 5000TV'S $2000 $10,000,000

Page: No NO2 Contribution 15,000,000 – 10,000,000 $5,000,000 fixed cost $4,000,000 Net profit 5,000,000 – 4,000,000 $1,000,000 :. Net profile for the previous years $1,000,000 Revised selling price = $2500 Variable cost $2000 Revised contribution = 2500 - 2000 $500 New break even point in units = $4,000,000 $ 500 8000 units