Question

3. Suppose a retail business sale its commodities at a margin of 25% on all items purchased and sold. Moreover the company uses 5% commission as selling expense and Birr 12,000 as a Fixed Cost, then Find the Breakeven revenue for the retail business after developing the equation ​

Answer 1

The Breakeven revenue for the retail business is Birr 12,500

What is breakeven?

Breakeven is the point at which the revenue is equals to the cost, hence the profit is zero.

Revenue = Cost

Let x represent the number of items sold, hence:

Revenue = (100% + 25%) of x = 1.25x

Cost = 5% of x + 12000 = 0.05x + 12000

At breakeven:

1.25x = 0.05x + 12000

x = 10000

Hence:

Revenue = 1.25(10000) = Birr 12,500

The Breakeven revenue for the retail business is Birr 12,500

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