Question

1. How can you determine the number of units necessary to attain a certain level of profit?
2. How can you determine total sales at the break even point?
3. Give 3 ways of stating break even: (relating items from the contribution income statement)

Answer 1

How can you determine the number of units necessary to attain a certain level of profit?

Step 1:- Calculate the Contribution margin per unit

Step 2:- Add the fixed cost to Targeted profit level

Step 3:- Divide the answer of step 2 by Step 1 to determine the number of units necessary to attain a certain level

Example :- Suppose Product A has Sales price p.u of $5 and Variable cost p.u of $3, Fixed costs of $1000. and want to attain a profit of $2,500

Step 1:- Calculate the Contribution margin per unit = $5 -$3 =$2

Step 2:- Add the fixed cost to Targeted profit level = $2,500 + $1,000 = $3,500

Step 3:- Divide the answer of step 2 by Step 1 to determine the number of units necessary to attain a certain level = $3,500/ $2 = 1,750 units

How can you determine total sales at the break even point?

Breakeven sales = (Fixed Costs / Contribution p.u x Selling Price

For the above example breakeven sales = ($1,000 / $2) x $5 = $2,500 (i.e at $2,500 sales profit will be zero)

Give 3 ways of stating break even

1. Breakeven in units

2. Breakeven in dollars

3. Breakeven in percentage