Question

A 13-ounce bottle of Prairie Herb vinegar sells for $13.25. Variable costs include $1.20 for ingredients, $0.75 for the bottle, and $0.60 for miscellaneous costs. Fixed costs for the company are $21,400.00 Calculate the break-even point quantity.

Answer 1

Solution :

Break-even point of a company is the point at which its sales ( in amount or quantity) is equal to its expenses. The profit at this point is equal to zero. Thus the break-even point is a no profit and no loss situation for the company.               

The formula to calculate the Break-even point quantity is

= { Fixed costs / ( Sales price per bottle – Variable costs per bottle )}

As per the Information given in the question

Fixed Costs = $ 21,400

Sales price per unit = $ 13.25

Variable costs = Ingredients cost + bottle cost + miscellaneous costs

                          = $ 1.20 + $ 0.75 + $ 0.60 = $ 2.55

Applying the above values in the above formula we have :

Break-even point in quantity = { $ 21400 / ( $ 13.25 - $ 2.55 )}

                                                               = { $ 21,400 / ( $ 10.7 )}

                                                               = 2000 bottles

Thus the break-even point quantity = 2000 bottles.