Breakeven volume

oney

Can someone please help me with solving these questions

Norvydas

@oney

First find the contribution per unit which is £3.00.

b) Breakeven - £57,000/£3.00 = 19,000 cans. This means when you produce 19,000 cans it will cover your fixed overheads.
c) Breakeven Sales Revenue - 19,000 cans x selling price (£5.00) = Total revenue £95,000
d) Margin of Safety - Budgeted Sales - Breakeven / Budgeted Sales = 20,000 cans x £3.5 contribution per unit = £70,000 Budgeted Sales - Breakeven which is £56,000 (Fixed Costs) = £14,000 (£70,000 - £56,000) then we divide this by Budgeted Sales and we get the answer of 20% (£14,000 / £70,000 = 0.2 x 100 = 20%). This means our Margin of Safety is 20% of 20,000 cans which is 4,000 cans.
e) Target Profit - Breakeven (£56,000) + Target profit (£31,500) / £3.50 contribution =25,000 cans. This means we need to sell 25,000 cans to achieve a target profit of £31,500.

Remember a company has to clear fixed overheads before they can actually make any profit.

*d - To find contribution per unit for section D you need to take Contribution per batch (£42,000) and divide by units per batch (12,000).

Let me know if this makes sense!

oney

Oh I see, so you have to find the variable first then divide it by the units in the batch to get the contribution per unit. Makes sense, thank you so much!

Ssanta

1.7
b) Breakeven volume = fixed costs / contribution per unit
(fixed costs)57000/(contribution per unit) ?
? = contribution is sales revenue less the variable costs
(sales revenue) 50000 (10000 cans £5.00 each) "less" - (contribution per unit) 20000 (Direct mat. 4810+ Direct labour 7508 + variable overheads 7682)=50000-20000=30000
Contribution per unit = 57000/30000=1.9 (can)
Break even Volume = 1.9*10000=19000 (per volume)

c) Breakeven Sales Revenue = 19,000 cans x selling price (£5.00) = Total revenue £95,000

d)Margin of safety (20000 cans)
Margin of safety = Budgeted sales units - brake even, = 20000- ?
? = brake even = fixed costs/ contribution per unit (42000 (contribution)/12000 (units))= 56000/3.5=16000
Margin of safety = 20000-16000=4000 units

e) how many cans to sell to reach its target profit
=(fixed costs + target profit)/contribution per unit
= (56000+31500)/3.5
=87500/3.5
=25000 cans