Answer:
a) 4 units
b) $2048
c) 14 units
Explanation:
Break-even quantity (BEP) is the level of activity that a business must operate to make its total revenue equal to its total cost. At this point, the business makes no profit or loss. It gives an idea of the exact number of units of product to be sold in order to cover its total fixed cost.
Break-even point (BEP) is calculated as follows:
BEP (units) = Total Fixed Costs for the Period/ (SP - VC)
SP- selling price, VC- variable cost per unit
Profit : This is the excess of the total revenue over and above the total cost .
Profit = Total revenue - total cost.
<em>Total revenue = SP × units sold</em>
<em>Total cost = Variable cost + Fixed cost</em>
<em>Total variable cost = VC per unit × units sold </em>
The number of units t achieve a target profit is determined as follows:
Units to achieve profit = (Total fixed cost + Target profit)/(SP - VC)
Now we can apply all these concepts to our question,
From the question, VC per unit= $17, SP per unit= $25, Fixed cost = $32
a) BEP = 32/(25-17) = 4 units
b) Profit from 260 units
Profit = (25 ×260) - ((17 × 260) + 32)
= $6,500- $4,452
= $2048
c) Units to be produced to achieve a profit of $80
Units = (32 + 80)/(25-17)
= 14 units
