Calculate the break-even sale and quantity from the following figure: Material cost 20 per unit, other manufacturing cost 10, Fixed cost 20000 for 100% capacity, Sale price 50 per... Calculate the break-even sale and quantity from the following figure: Material cost 20 per unit, other manufacturing cost 10, Fixed cost 20000 for 100% capacity, Sale price 50 per unit. The company is running at 60% production capacity.
Understand the Problem
The question is asking to calculate the break-even sales and quantity based on provided material costs, manufacturing costs, fixed costs, and sales price while considering the company's production capacity.
Answer
The break-even quantity is $1000$ units; at 60% capacity, the actual sales can be $600$ units.
Answer for screen readers
The break-even quantity is $1000$ units, and considering the company's production capacity, they can actually sell $600$ units at 60% capacity.
Steps to Solve
- Understand the Cost Structure
Identify the various costs associated with production:
- Material cost per unit: $20
- Other manufacturing cost per unit: $10
- Total variable cost per unit = Material cost + Other manufacturing cost $$ VC = 20 + 10 = 30 $$
- Calculate the Contribution Margin
Determine the selling price and the contribution margin:
- Selling price per unit: $50
- Contribution margin per unit = Selling price - Total variable cost $$ CM = 50 - VC = 50 - 30 = 20 $$
- Determine Fixed Costs
Identify the fixed costs provided in the question:
- Fixed costs = $20,000
- Calculate Break-even Quantity
Use the formula to calculate break-even quantity: $$ BEQ = \frac{\text{Fixed Costs}}{\text{Contribution Margin}} $$ Substituting the values: $$ BEQ = \frac{20000}{20} = 1000 $$
- Consider Production Capacity
The company is operating at 60% capacity. Since $1000$ units represent the full capacity, we can consider this for overall sales:
- Actual production capacity = 1000 units * 60% $$ Actual Capacity = 1000 \times 0.6 = 600 $$
The break-even quantity is $1000$ units, and considering the company's production capacity, they can actually sell $600$ units at 60% capacity.
More Information
The break-even point indicates the quantity of sales required to cover all costs, both fixed and variable. Knowing the break-even quantity helps businesses plan their sales strategies effectively.
Tips
- Mistaking total cost calculations by not separating variable and fixed costs.
- Forgetting to adjust quantity based on production capacity.
- Not using the correct formula for contribution margin.
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