To find the break-even point in terms of quantity, we need to use the following formula:
Break-even point (units) = Total Fixed Costs / (Selling price per unit - Variable cost per unit)
Plugging in the given values, we get:
Break-even point (units) = 350,000 / (100 - 60)
Break-even point (units) = 350,000 / 40
Break-even point (units) = 8,750
Therefore, the break-even point in terms of quantity is 8,750 units.
= 25,000 units Selling price = Birr 100
Total variable cost = Birr 1,500,000 TFC = Birr 350,000
Required
b) Find the break-even point in terms of quantity
3 answers
How to get 60 the above answer
The variable cost per unit is given in the question as Birr 60. Total variable cost is given as Birr 1,500,000, which we can divide by the total units sold to get the variable cost per unit:
Variable cost per unit = Total variable cost / Total units sold
Variable cost per unit = Birr 1,500,000 / 25,000
Variable cost per unit = Birr 60
This means that for each unit sold, the company incurs a variable cost of Birr 60. Therefore, the selling price of Birr 100 per unit minus the variable cost of Birr 60 per unit gives a contribution margin of Birr 40 per unit. We can use this contribution margin in the formula to calculate the break-even point in terms of quantity.
Variable cost per unit = Total variable cost / Total units sold
Variable cost per unit = Birr 1,500,000 / 25,000
Variable cost per unit = Birr 60
This means that for each unit sold, the company incurs a variable cost of Birr 60. Therefore, the selling price of Birr 100 per unit minus the variable cost of Birr 60 per unit gives a contribution margin of Birr 40 per unit. We can use this contribution margin in the formula to calculate the break-even point in terms of quantity.
1 answer