Help!!

Kate9986

Hi - was just wandering if anyone could help can't seem to get this question and get a different answer everytime I do it!
Mark runs a business he has forecast the following costs per unit based on a production of 12,000 generators.
componants £38
Direct labour £36
other direct costs £6
Factory overheads £51
admin expenses £14
selling and distribution exp £6
total costs per unit based on an output of 12,000 units £151

In fact only 10,000 were produced. Factory overheads did not vary irrespective of how many units were produced or sold.
50% of the admin exps and selling exps varied directly with the number of generators produced. The rest of the expsenses remained fixed.

The selling price of a generator is £170

I need to know the number of generators Mark needs to sell in order to break even, and the sales revenue he needs to generate in order to break even. Any help would be much appreciated as think I am losing my marbles over this question!!!! Thanks

visha

the formula for BEP in UNITS is TOTAL FIXED COSTS divide by CONTRIBUTION PER UNIT.

Once you have worked out BEP number of unit and multiply by the selling price of the unit you will get BEP sales Revenue.

To work out CONTRIBUTION you need to know what is a variable cost per unit. ie. the total of all the direct cost. (DM+DL+ODC+50% of S&D costs)

Take the VARIABLE COSTS per unit away from the SELLING PRICE per unit and you will arrive at CONTRIBUTION PER UNIT.

To work out the TOTAL FIXED COST- you will need to add all the overhead costs per unit and multiply by 12000 unit.

or take-away VARIABLE COST PER UNIT from £151 (total costs per unit) to arrive at the FIXED COSTS ABSORBED by each unit.
Multiply FIXED COST PER UNIT by 12000 units (the absorption was based on this amount) and you will arrive at THE TOTAL FIXED COSTS.

Apply the above formula to it and you will come to your answer.

as per my calculation I make BEP as 9379.31 units = 9380 units.

Kate9986

Thank you so much!! :001_smile:

SandyHood

Kate

Having read your first line “I different answer every time I do it!”

I hope this second response does not send you mad.

My answer is different from visha’s

I have treated the following as variable costs

components £38

Direct labour £36

other direct costs £6

admin expenses £7

selling and distribution £3



So I reckon you have total variable cost per unit of £90



This gives you a contribution per unit of £80



I have treated the following as fixed costs

Factory overheads £51 x 12,000 = £612,000

admin expenses £7 x 12,000 = £84,000

selling and distribution exp £3 x 12,000 = £36,000



So I reckon you have a total fixed cost of £732,000



On that basis

Break Even units 9,150

Break Even Sales Revenue £1,555,500



Sandy

Kate9986

Thanks Sandy, I worked through using the info from the other post but came up with the same answers as you!! Really struggling this year - have a baby due in 2 weeks so don't think my mind has been completly on it this year! Thanks for your help. Kate:001_smile: