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Break Even Point Analysis in Costs

1. ABC Company sell for $20 per unit, and the variable cost to produce them is $15. Gateway estimates that the fixed costs are $80,000.

a. Compute the break-even point in units.
b. Fill in the table below (in dollars) to illustrate that the break-even point has been achieved.

Sales _______________
-Fixed costs _______________
-total variable costs _______________
Net profit (loss) _______________

2. UOP Penn & Pencil Sets, Inc. has fixed costs of $80,000. Its product currently sells for $5 per unit and has variable costs of $2.50 per unit. Mr. Bic, the head of manufacturing, proposes to buy new equipment that will cost $400,000 and drive up fixed costs to $120,000. Although the price will remain at $5 per unit, the increased automation will reduce variable costs per unit to $2.00.

As a result of Bic's suggestion, will the break-even point go up or down? Compute the necessary numbers.

Solution Preview

1. Break Even Point can be calculated by solving for X:
20X = 80,000 + 15X
=> 5X = 80,000
=> X = 16,000

1 (a): The break even point in units will be 16,000
1 ...

Solution Summary

This solution provides a detailed step-by-step explanation of break even analysis shows calculations to determine sales, fixed costs, total variable costs and net profit loss.