Breakeven volume
oney
Registered Posts: 6
Can someone please help me with solving these questions
Best Answer

Norvydas DevonPosts: 247@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!Kind Regards,
Norvydas Valavicius.
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