Variable cost is 10/- per unit and Fixed cost is 20000/-, if the sale price per unit is 20/-, calculate the contribution, break even sale and break even unit.
Understand the Problem
The question is asking to calculate the contribution, break-even sale, and break-even unit based on provided variable cost, fixed cost, and sale price per unit.
Answer
Contribution: $10$, Break-even units: $2000$, Break-even sales: $40000$
Answer for screen readers
- Contribution per unit: $10$
- Break-even units: $2000$
- Break-even sales: $40000$
Steps to Solve
- Calculate Contribution per Unit
Contribution per unit is calculated using the formula:
$ \text{Contribution} = \text{Selling Price} - \text{Variable Cost} $
Substituting the values:
$ \text{Contribution} = 20 - 10 = 10 $
- Calculate Break-even Point in Units
Break-even point (BEP) in units is given by the formula:
$ \text{Break-even Units} = \frac{\text{Fixed Costs}}{\text{Contribution per Unit}} $
Using the values:
$ \text{Break-even Units} = \frac{20000}{10} = 2000 $
- Calculate Break-even Sales
Break-even sales can be found by multiplying the Break-even units by the Selling Price:
$ \text{Break-even Sales} = \text{Break-even Units} \times \text{Selling Price} $
Thus:
$ \text{Break-even Sales} = 2000 \times 20 = 40000 $
- Contribution per unit: $10$
- Break-even units: $2000$
- Break-even sales: $40000$
More Information
The contribution margin is critical in determining how much revenue from each unit sold contributes to covering fixed costs and ultimately generating profit. The break-even analysis helps businesses understand the minimum sales needed to avoid losses.
Tips
- Not deducting variable costs from the selling price correctly.
- Forgetting to use the fixed cost in the break-even unit calculation.
- Confusing break-even units with break-even sales.
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