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Calculating Break even Sales

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C-V-P Analysis
The Last Outpost is a tourist stop in a western resort community. Kerry Yost, the owner of the shop, sells hand-woven blankets for an average price of $30 per blanket. Kerry buys the blankets from weavers at an average cost of $21. In addition, he has selling expenses of $3 per blanket. Kerry rents the building for $300 per month and pays one employee a fixed salary of $500 per month.

1. Determine the number of blankets Kerry must sell to break even.
2. Determine the number of blankets Kerry must sell to generate a profit of $1,000 per month.
3. Assume that Kerry can produce and sell his own blankets at a total variable cost of $16 per blanket, but that he would need to hire one additional employee at a monthly salary of $600.
a. Determine the number of blankets Kerry must sell to break even.
b. Determine the number of blankets Kerry must sell to generate a profit of $1,000 per month.

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Solution Summary

Solution describes the steps in finding break even sales and sales required to generate a certain profit for blankets. Calculations are repeated assuming he starts his own manufacturing.

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1. Determine the number of blankets Kerry must sell to break even.

Fixed costs per month = Rent +salary = $300+$500=$800
Selling Price = $30 per blanket
Variable costs per blanket = cost+ selling expanses per blanket = 21+3 =$24
Break even Point = (Fixed Costs)/(Price per unit-Variable cost per unit)
= (800)/(30-24) =(800/6)=133.33 or 134
He has to sell 134 blankets per month to break even.

2. Determine the number of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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