Question Completion:
Assuming the following: (i) the sales price for each CompuTech product sold is $50; (ii) each product sold costs $25 in Raw Material components; and the business Fixed Cost is $45,000.
Q1: What is the BE in units for CompuTech in 2021?
Q2: What impact would occur to the BE if the variable cost of materials rose by 10% during the year?
Answer:
CompuTech
Answer 1: The BE (Break-even Point) in units for CompuTech in 2021 is:
1,800 units.
Answer 2: If the variable cost of materials rose by 10%, the BE will increase to:
2,000 units.
Explanation:
a) Data and Calculations:
Selling price per unit = $50
Direct material cost per unit = $25
Contribution per unit = $25
Fixed Cost = $45,000
Break-even point = Fixed Cost/Contribution per unit
= $45,000/$25
= 1,800 units
b) BE if the variable cost of materials rose by 10% during the year:
Selling price per unit = $50
Direct material cost per unit =$27.50 ($25 * 1.1)
Contribution per unit = $22.50
Fixed Cost = $45,000
Break-even point = Fixed Cost/Contribution per unit
= $45,000/$22.50
= 2,000 units
c) The break-even point in units represents the quantity at which the costs of production equal the revenues for the goods. It is the point where no profit is made, but all the costs, including fixed costs, are covered by the revenues.
