Question

BREAKEVEN POINT AND SELLING PRICE
UAE Industries will manufacture and sell 325,000 units next year. Fixed costs will total SAR 675,000, and variable costs will be 36% thirty-six percent) of sales.
a. The firm wants to achieve a level of earnings before interest and taxes of SAR 300,000. What selling price per unit is necessary to achieve this result?
b. Set up a pro forma income statement to verify your solution to part a.
Solution:
DATA
Sell		325,000
Fixed Costs		675,000
Variable Costs		36%
A)
EBIT
Sales =
Avg selling price =		0.00
B)
Sales		0
Total VC		0
Revenue before FC		0
Total FC
EBIT		0

Answer 1

Selling Price = X

Variable cost per unit = 0.36X (because it is 36% of Sales = 36% of X = 0.36X

Fixed Cost = SAR 675,000

Desired EBIT = SAR 300,000

Total units to be sold = 325000 units

Sales = Total Units x Selling Price = 325000X

Variable Cost = Total Units x 36% x Selling Price = 325000x36% X = 117000X

We can apply below formula to get Selling Price:

Desired EBIT = Sales - Variable Cost - Fixed Cost

300000 = 325000X - 117000X - 675000

208000X = 975000

X = Selling Price = 4.6875

Hence, Variable cost Per Unit = 4.6875x 36% = 1.6875

Particulars	Per unit price	Amt in SAR
Sales	4.6875	1,523,437.50
Total VC	1.6875	548,437.50
Revenue before FC = Sales - Total VC ----- A		975,000.00
Total FC ------ B		675,000.00
EBIT (A-B)		300,000.00