BEP and Variable Cost
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The solution solves three problems on break even analysis and variable cost.
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1. Sporto Enterprises is considering the manufacture of a new type of golf ball. Each golf ball would sell for $3.75 and would require $1.75 in variable costs. In addition, annual fixed costs associated with the project would total $64,000.
Calculate: (a) the breakeven point in units
Selling price (S) $ 3.75
Variable cost (V) $ 1.75
Fixed cost (FC) $ 64,000
BEP = FC/(S-V) 32,000 units
(b) the breakeven point in dollars,
Selling price (S) $ 3.75
Variable cost (V) $ 1.75
Fixed cost (FC) $ 64,000
BEP = FC/(1-V/S) $ 120,000
(c) the operating income or loss at a sales volume of $112,500
Profit = Sales Volume*(1-V/S) - FC $ -4,000 (negative sign indicates loss)
Since sales volume is less ...
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