Question

"Beta Company sells wrist watches at $75 each. Variable cost incurred is $60 for each unit. The break-even point for Beta is 5,000 wrist watches. Determine the number of wrist watches that Beta must sell to earn an operating income of $92,700."

Answer 1

Answer:

Beta must sell 11,180 wrist watches to earn an operating income of $92,700.

Explanation:

Break-even point is the level of sale at which the company is in No Profit and No loss position. It shows that the company has earned enough contribution which covers all the fixed cost of the business.

Selling Price = $75 per unit

Variable cost = $60 per unit

Contribution = Selling Price - Variable cost

Contribution = $75 - $60

Contribution = $15 per unit

Fixed Cost = ?

We can calculate Fixed cost using following formula

Break-even point = Fixed Cost / Contribution per unit

5,000 = Fixed Cost / $15

Fixed Cost = 5,000 x 15 = $75,000

Desired Income = $92,700

We can calculate the sales volume required to earn desired Income of $92,700 by using following formula

Sales Volume = ( Fixed Cost + Desired Profit ) / Contribution per unit

Sales Volume = ( $75,000 + $92,700 ) / $15

Sales Volume = $167,700 / $15

Sales Volume = 11,180 Wrist watches