Question

QUESTION 4

A local livestock producer utilizes compost waste to develop an organic fertilizer. The fertilizer is prepared for retail sale is fifty pound bags.

Sales price per unit	RM5
Variable cost per unit	RM2.8
Annual fixed costs	RM60,000

Based on the above information, calculate the following.

1. The breakeven point in unit and sales
2. What would be the firm’s profit or loss if the firm’s total production and sales is 25 units per annum?

Answer 1

a) Break-even sales formula:

Now,

Now we can find break-even sales

Break even units:

b) When total units produced and sold is 25 units.

Total sales = 25 * 5 = RM 125
Variable costs = 25 * 2.8 =  RM 70
Contribution = 125 - 70 = RM 55
Profit or loss = Contribution - Annual fixed costs
= RM 55 - RM 60000 = -59,945

Therefore, its a loss of -RM 59,945

Particulars	Break even	Quantity 25
Units produced and sold	27,273	25
Total Sales	136,364	125
Less: Variable costs	76,364	70
Contribution	60,000	55
Less: Annual fixed costs	60,000	60,000
Profit or loss	0.00	-59945