I understand how to do number one, but I need help figuring out how to do the last two with estimated amounts? It does not matter what amount is chosen, I just need help figuring out the steps for 2 and 3. Thanks in advance
In this question, there are only two requirements - One is to prepare the flexible budget at three different level of production (10,000 bars, 8,000 bars and 12,000 bars) and the second requirement is to fund out the break-even point in units (bars) showing how many can be sold. Since the first one can be solvable by you as per your requirement, the second point is resented below. Also, as per your suggestion to choose any amounts in calculations, the below figures were taken in order to make you understand how to proceed with second requirement.
Suppose -
Sales Revenue = $300,000 (where selling 12,000 bars with selling price of $25 per bar)
Cost of goods sold contains both variable and fixed costs -
Variable = $95,000
Fixed = $5,000
Gross Profit = $200,000 ** Gross profit is always equals to Sales - Cost of goods sold
Operating expenses = $90,000 (all are fixed)
Net Income = $110,000
Based on the above chosen figures, calculate the break-even point in units (bars) -
Break-even point in units (bars) = Total Fixed Cost / Contribution Margin per unit
Contribution margin = Total Sales Revenue - Total Variable Costs
= $300,000 - $95,000
= $205,000
Contribution margin per unit = Contribution margin / number of units (bars) sold
= $205,000 / 12,000 bars
= $17.08 per bar
Now, calculate the break-even point in units (bars) = Total Fixed Cost / Contribution margin per bar
= ($5,000 + $90,000) / $17.08 per bar
= $95,000 / $17.08 per bar
= 5,562 bars
Therefore, break-even point in units (bars) are 5,562 bars based on the information chosen.
Note: The answers will vary base on the information taken but the concept presented above is same,
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