Monthly fixed cost: 10 000,-
Variable cost: 15,-/customer
Volume: 1 500 customers per month
Price: 25,-/customer
When business started, there came only 800 customers/month.
However, fixed cost was only 5000,-.
a)Break-even?
b)Profit?
c)How much should the price be to reach the original target in this situation with 800 customers?
Tutor Changed status to publish February 18, 2019
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Answer—Breakeven in units = 500 units
Breakeven in Dollars= $12,500
| Working | |||
| A | Sale Price per unit | $ 25.00 | |
| B | Variable Cost per Unit | $ 15.00 | |
| C=A x B | Unit Contribution | $ 10.00 | |
| D | Total Fixed cost | $ 5,000.00 | |
| E=D/C | Breakeven point in units | 500.00 | |
| F= E x A | Breakeven in sales dollars | $ 12,500.00 | |
Requirement (b)
Answer—$3,000
| Income Statement | |
| Sales (25*800) | $ 20,000.00 |
| Variable Cost (15*800) | $ 12,000.00 |
| Contribution margin | $ 8,000.00 |
| Fixed Cost | $ 5,000.00 |
| Income | $ 3,000.00 |
Requirement (c)
Answer—$ 27.50
| Original target | |
| Sales (1500*25) | $ 37,500.00 |
| Variable Cost (1500*15) | $ 22,500.00 |
| Contribution margin | $ 15,000.00 |
| Fixed cost | $ 10,000.00 |
| Net income | $ 5,000.00 |
| A | Fixed cost to be recovered | $ 5,000.00 |
| B | Variable cost to be recovered (800*15) | $ 12,000.00 |
| C | Profit to be earned | $ 5,000.00 |
| D=A+B+C | Total revenue | $ 22,000.00 |
| E | Number of customers | 800 |
| F=D/E | Price to be charged | $ 27.50 |
Alternative solution for part C is also given below assuming $10000 fixed cost.
| B | Variable cost to be recovered (800*15) | $ 12,000.00 |
| C | Profit to be earned | $ 5,000.00 |
| D=A+B+C | Total revenue | $ 27,000.00 |
| E | Number of customers | 800 |
| F=D/E | Price to be charged | $ 33.75 |
Anonymous Changed status to publish January 15, 2019
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