Question

WHen starting a small staffing/recruiting firm decide how many sales (in units) you would make in a year (factoring in all decisions made so far--target market, competition, etc.).What is your gross revenue projection for the year? (unit price x units sold = revenue) 2. There are fixed costs to consider. Give some basic examples of fixed cost expense categories for a business such as yours. Estimate what the associated fixed cost expenses will be on an annual basis for your venture. What is this figure? 3. There are variable costs to consider. Give some basic examples of variable cost expense categories for a business such as yours. Estimate what the associated variable cost expenses will be on a per-unit produced/sold basis. Based on sales projections in #1 above, what then is the total variable cost expenses for the year? 4. Combine total fixed costs and total variable costs. This is your total expenses. What is this figure? 5. Figure your net profit from gross revenue minus total expenses. What is this figure? 6. What is your break-even point in dollars? What is your break-even point in units sold?

Answer 1

(1).

Suppose we are expecting to sell 10000 units and selling price $50.

Gross revenue = (Number of units sold * Sale price)

Gross revenue (10000 * $50) = $500000

(2).

Following are some examples of fixed costs;

·        Rent

·        Salary

·        Interest expense

·        Depreciation expense

·        Property taxes etc.

Suppose fixed costs for the year are = $100000

(3).

Following are some examples of variable costs;

·        Direct materials

·        Direct labor

·        Production supplies

·        Commission

·        Freight etc.

Suppose variable cost per unit = $30

Total variable costs (10000 units * $30) = $300000

(4).

Total cost = Total fixed costs + Total variable costs

Total costs ($100000 + $300000) = $400000

(5).

Net profit = (Gross revenue – Total costs)

Net profit ($500000 – $400000) = $100000

(6).

Break-even point in units sold will be calculated as follow;

Break-even point in units sold =

Fixed costs / (Sales price per unit – variable cost per unit)

Thus break-even point in units sold =

$100000 / ($50 – $30)

= $100000 / $20

= 5000 units

Break-even point in dollars will be calculated as follow;

Break-even point in dollars =

(Break-even points in units sold * Sale price per unit)

Now let’s put the values in above given formula;

Break-even point in dollars =

(5000 * $50) = $250000