Question

Company manufactures molds for casting aluminium alloy test samples. Fixed costs amount to 20 000,- per year. Variable costs for each unit manufactured are 16,- sales price is 28,-

a) Calculate the breakeven point in unit sales

b) what is the operating profit (loss) if the company manufactures and sells

i) 1 500 units per year

ii) 3 000 units per year

c) Calculate the breakeven point in unit sales if variable costs decrease by 20% and selling price decrease by 10 %.

Answer 1

a)

Break even units = Total fixed costs / Contribution margin per unit

Break even units = $20,000 / ($28-$16)

Break even units = 1,667

b)

	1,500	3,000
Sales	1,500*$28 = $42,000	3,000*$28 = $84,000
Less: Variable expenses	1,500*$16 = $24,000	3,000*$16 = $48,000
Less: Fixed costs	$                          20,000	$                       20,000
Operating profit (loss)	$                          (2,000)	$                       16,000

c)

Break even units = Total fixed costs / Contribution margin per unit

Break even units = $20,000 / (($28*90%) - ($16*80%)

Break even units = 1,613 Units

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