breakeven help

donnas1977

can someone help me. i was trying an on-line example and got the following, a company produces chocolate cakes at a selling cost of £15 per unit and total variable costs per unit is £7.80. Fixed Costs associated is £14,720. it asks us to do the following:

Calculate Budgeted Break even point - am i right in thinking this would be £14,720/£7.20 (this being selling price - variable cost). I got this point as 2044 and was marked wrong, am i missing something else in this step?

Budgeted Break-even in £ ( i assume this would be my answer from part 1 x by selling price?)

margin of safety in%

how many cakes required to make a profit of £4000 (Fixed cost +Required profit/contribution)

Thanks

Donna

tallrodney

Break even is 2,045 units as you should always round up to the next whole unit (at 2,044 you wouldn't quite break-even)

Budgeted break even in £ is break even * Sales = 2,045 * 15 =£30,675.

Margin of safety is Expected level of sales less break even.

For example if you expect to sell 10,000 units and your break even is 2,045 then your margin of safety would be 7,955 units. Expressed as a % its 7,955/10,000 * 100 =80%.

Cakes required to make profit of £4,000 is

Fixed costs 14,720
Profit 4,000
Required contribution is 18,720/7.20 = 2,600 units.

Hope this helps.

Rinske

I think this question is mean.

I read this and now I really want to eat some chocolate cake!

donnas1977

thanks, that does help. i forgot you had to round up to break even.

Yes i agree very mean question, lets hope that sort of one don't come up in real exam or i will be thinking of cake and not concentrating enough to pass the exam!