Question

A manufacturer plans to introduce a new type of shirt based on the following information. The selling price is $57.00; variable cost per unit is $18.00; fixed costs are $7800.00; and capacity per period is 500 units. a) Calculate the break-even point (i) in units (ii) in dollars (iii) as a percent of capacity b) Draw a detailed break-even chart. c) Calculate the break-even point (in units) if fixed costs are reduced to $7020.00 d) Calculate the break-even point (in dollars) if the selling price is increased to $78.00

Answer 1

Let the break even point in units be x,
57x = 18x + 7800
57x - 18x = 7800
39x = 7800
x = 7800/39 = 200

Thus break-even point in units is 200 units.
The break-even point in dollars is 57 x 200 = $11,400
Break-even point as a percent of capacity is 200 / 500 x 100 = 40%

c.) 57x = 18x + 7020
39x = 7020
x = 7020 / 39 = 180
Thus when fixed cost is reduced to $7020, the break-even point is $180.

78x = 18x + 7800
78x - 18x = 7800
60x = 7800
x = 130
Thus, when sellingprice is increased to $78 the break-even point in dollars is 78 x 130 = $10,140