Question

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QUESTION 4 A local livestock producer utilizes compost waste to develop an organic fertilizer. The fertilizer...

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?

Solutions

Expert Solution

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

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