Wanton’s San Y’isidro Co. manufactures custom door knobs for international clients. Average Revenue is $35 per unit, variable costs are $15 per unit, and total costs are $200,000. If sales are 10,000 units, what is the firm's breakeven sales quantity?
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For this problem you need 2 equations.
Break-even quantity = Fixed Costs / (Price - Variable cost)
Q = FC / (P - V)
Fixed Costs = Total Costs - Variable Costs
FC = TC - VC = 200,000 - 150,000 = 50,000
Q = 50,000 / (35 - 15) = 2,500
Jayco, Inc. has a division that makes red ink for the accounting industry. The unit has fixed costs of $10,000 per month, and is expected to sell 40,000 bottles of ink per month. If the variable cost per bottle is $2.00 what price must the division charge in order to breakeven?
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40,000 = $10,000/(P - $2)
40,000P – $80,000 = $10,000
P = $90,000/40,000 = $2.25.
Annual fixed costs at King Mattress amount to $325,000. The variable cost of raw materials and labor is $120 for the typical mattress. Sales prices for mattresses average $160. How many units must King Mattress sell to break even?
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QBreakeven = Fixed Cost / (Price – Variable Cost)
QBreakeven = $325,000 / (160 – 120) = 8,125
Jayco, Inc., sells blue ink for $4.00 a bottle. The ink's variable cost per bottle is $2.00. Ink has fixed cost of $10,000. What is Jayco's breakeven point in units?
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QBE = [FC] / (P - V)
QBE = [10,000] / (4.00 - 2.00) = 5,000
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