Question

VSB 3006 – Dr. JME

Handout - Breakeven

                                        #1                #2               #3

Selling Price of A             10                 15                 6

Selling Price of B             8                  22                5

Variable Cost of A           4                  11                 4

Variable Cost of B            7                  19                 4

Mix of A and B                 5-2               3-5               2-1

Fixed Costs                      1,700            2,000           1,000

Tax Rate                          25%             30%             30%

Desired NI                      10,000          45,000         28,000

Required: Determine the number of As and Bs each of the firms should sell to meet their individual goals.

Answer 1

Please find the solution to the above problem in simple and easy to understand tabular format below with all the required forrmulas and steps:

Step	Particulars	#1	#2	#3
A	Selling Price of A	10	15	6
B	Selling Price of B	8	22	5
C	Variable cost of A	4	11	4
D	Variable cost of B	7	19	4
E	Mix of A & B	5:2	3:5	2:1
F	Fixed Costs	1700	2000	1000
G	Tax Rate	25%	30%	30%
H	Desired NI	10000	45000	28000
I = A-C	Contribution of A	6	4	2
J = B-D	Contribution of B	1	3	1
K (In Mix Ratio)	Units Sold of A	5X	3Y	2Z
L (In Mix Ratio)	Units Sold of B	2X	5Y	Z
M = I*K+J*L	Total Contribution	32X	27Y	5Z
N = M-F	Net Income	32X-1700	27Y-2000	5Z-1000
O (Equation H = N)	Equation based on Desired NI	32X-1700 = 10000	27Y-2000 = 45000	5Z-1000 = 28000
P (Based on Equation O)	Value of variable	X=(10000+1700)/32 = 365.63 = 366 (R/O)	Y=(45000+2000)/27 = 1740.75 = 1741 (R/O)	Z=(28000+1000)/5 = 5800
Q	Desired units of A	5X = 5*366 = 1830	3Y = 3*1741 = 5223	2Z = 2*5800 = 11600
R	Desired units of B	2X = 2*366 = 732	5Y = 5*1741 = 8705	Z = 5800