Question

Owen Conner works part-time packaging software for a local distribution company in Indiana. The annual fixed cost is $10,000 for this process, direct labor is $4.25 per package, and material is $5.00 per package. The selling price will be $12.50 per package.
a. What is the break-even point in units? (Do not round intermediate calculations. Roundup your answer to the next whole number.)b. How much revenue do we need to take in before breaking even? (Round your answer to the nearest dollar amount.)

Answer 1

Answer:

a) $15000 + 4.25 x + 5 x = 12.5 x$

$15000 = 3.25 x$

$x = \frac{15000}{3.25}= 4615.38 units$

And if we round up to the nearest integer we got 4616 units.

b) $S= 12.5 *4616= 57700$

Explanation:

Part a

In order to find the breakeven units we need to use the following equation:

$FC + DLC + MC = S$   (1)

Where:

FC represent the fixed cost

DLC represent the direct labor cost

MC represent the material cost

S represent the amount obtained with the selling process or the revenue

Let's define x the number of units, we can rewrite expression (1) like this:

$15000 + 4.25 x + 5 x = 12.5 x$

And if we solve for x we can do this:

$15000 = 3.25 x$

$x = \frac{15000}{3.25}= 4615.38 units$

And if we round up to the nearest integer we got 4616 units.

Part b

For this case we can calculate the revenue like this:

$S= 12.5 *4616= 57700$