Question

x mobile company sells car batteries to service stations for an average of $85 each.the variable cost ofeach battery is $48 and monthly fixed selling cost total $6000. other monthly fixed costs of the company total $7000.

what is breakeven point in batteries?

what is the margin of safety assuming sales total $32000?

what is break even level in batteries assuming variable cost increase 20%?

what is breaking level in batteries assuming the selling price goes up by 10 % fixed selling cost declined by 10 % other fixed cost declined by $1000?

Answer 1

In the given case, X mobile sells car battries to service centres for an average of $ 85 each. the variable cost of each battery is $48. fixed cost = $6000 + 7000 = $ 13000

Thus the Contribution margin per battery = Sales - variable cost = $ 85 - $ 48 = $ 37 per battery.

1

Break even point is the level of sales or the units which gives no profit no loss to the company , it is indifference level having zero profit. The formula for the brea even point in units = Fixed cost / Contribution per unit.

Break even point in battreries = Fixed Cost / Contribution per battery = $ 13000 / 37 = 351.35 i.e 351 battries.

Further based on this the break even sales = $ 351.35 * 85 = $ 29864.75 i.e $ 29,865.

what is breakeven point in batteries = 351 battries ( Rounded off)

2. Margin of safety : It is the amount of sales above the break even point sales.

Margin of saety sales = Actual sales - Break even sales = $ 32000 - $ 29865 = $ 2135.

3.

If variable cost increase by 20% , break even level in battries :

Revised variable cost = 48 + 20% = 48 + 9.6 = $ 57.6 , sales per battery = $ 85 , thus revised contribution per battery = Sales - variable cost = $ 85 - $ 57.6 = $ 27.4.

Thus Break even in battries = Fixed Cost / Contribution per battery = 474.45 i.e 474 battries.

Thus Break even in battries = 474 battries

thus break even in sales = $ 474.45 * 85 = $ 40328.25 i.e $ 40328

4. what is breaking level in batteries assuming the selling price goes up by 10 % fixed selling cost declined by 10 % other fixed cost declined by $1000?

Sales price = $ 85 + 10% = $85 + 8.5 = $ 93.5 , variable cost = $ 48 as given ,

thus contribution per battery = Sales - variable cost = $ 93.5 - 48 = $ 45.5

fixed cost = Fixed selling cost + other fixed cost = ( 6000 - 10% ) + ( 7000 - 1000 )  

Fixed cost = 5400 + 6000 = $ 11,400

Thus Break even point in battries = Fixed cost / Contribution per battery = $ 11400 / 45.5 = 250.55 i.e 256 battries.

Break even level in batteries = 256 battries