Question

Hi,

This course-related to Managerial Accounting. It's about all costs considered in the break-even analysis, and identify if the cost is variable, fixed or mixed.

What is in your opinion about this message under below?

I have used the break-even analysis when I tried creating a cup design business using the Cricut machine. The Cricut is a sticker maker which allows you to personalize a lot of different items. In this case, I went to a pop-up event like a little farmers market and sold the cups I designed. I spent 50 dollars on cup supplies and 100 dollars on Cricut supplies. I sold each cup for 10 dollars so I needed to sell 15 cups to break even. In the long run, I sold a little more than 15 cups so I did make a profit. In the end this pop event I sold 20 cups so I received 200 dollars. The break-even analysis helped me have a pricing strategy to meet my target profit.

Variable: the amount of Cricut supplies used for each cup

Fixed cost: the cost per cup

Break-even equation: Total Fixed cost

(Selling Price -variable cost per unit )

50/ (10-5) =10

The break-even analysis is 10

Answer 1

As per my opinion the above calculation and classifications done are not appropriate.

computation of break even point in terms of units of cup is also not correct.

selling price = $10

(-) variable cost = $5

= contribution per cup = $5

then selling 15 cup as per break even point will give

contibution = 15* $5 = $ 75 which is not sufficient to cover fixed cost of $150

Rather selling 30 cups will give a contribution equal to fixed cost

*it is assumed that 50 spent for cup and 100 for circuit are fixed cost.

But if they are not fixed cost then the about calculation and classification are appropriate.

And break even analysis is also correct.