Question

In: Operations Management

Yonka Beauty products has total variable costs of $25 million and fixed costs of $60 million...

Yonka Beauty products has total variable costs of $25 million and fixed costs of $60 million per year. Sales for the year are 5 million units at an average price of $35. What are breakeven units?

A.12 million.

B.6 million.

C.5 million.

D.2 million.

E.3 million.

Expert Solution

At breakeven point the revenue generated is equal to total cost, the company is at a position where there is no profit no loss.

Let, Q = breakeven volume

V = unit variable cost

F = fixed cost

S = unit selling price

Total Cost = Fixed cost + Total variable cost = F + V*Q

Total Revenue = Quantity x unit revenue = S*Q

At breakeven point, Revenue = cost

(Q)(S) = F + (Q)(V)

Breakeven volume = Q = F/(S – V)

S – V = unit contribution margin (CM)

Breakeven volume = Q = F/CM

For the problem,

For given problem,

Price per unit = S = $35

Sales (units) = 5 million units

Total variable cost = $25 million

Fixed cost = F = $60 million

Variable cost per unit = V = Total variable cost / units sold = $25 million / 5 million units = $5 per unit

Contribution margin per unit = S – V = 35 – 5 = $30 per unit

Breakeven volume = Q = F/CM = $60 million / $30 per unit = 2 million units

Correct Ans: Breakeven units = D. 2 million units

keosha answered 5 months ago

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