Question

Arnold purchased a new printing machine and started a small printing shop. As per his calculations, to earn revenue of $4,000 per month, he needs to sell printouts of 20,000 sheets per month. The printing machine has a capacity of printing 35,500 sheets per month, the variable costs are $0.03 per sheet, and the fixed costs are $2,000 per month.

a. Calculate the selling price of each printout. Round to the nearest cent

b. If they reduce fixed costs by $290 per month, calculate the new break-even volume per month. Round up to the next whole number

c. Calculate the new break-even volume as a percent of capacity. % Round to two decimal places

Use formulas provided:

TR = Sx

TC = VCx + FC

P = Sx–(VCx + FC)

Answer 1

1.*TC=VCx + FC = 0.03(x) + 2,000 = 0.03(20,000) +2,000 = $600+2,000 = $2,600

*P=Sx-(VCx+FC) => SX = (VCx+FC)+ P = $2,600 + $4,000 = $6,600.

*Selling price = $6,600/20,000 = $0.33

Particulars	Amount	Per unit
Sales (20,000 units)	$        6,600	$0.33
Variable cost	$           600	$0.03
Contribution	$        6,000	$0.30
Fixed Cost	$        2,000
Profit	$        4,000
Contribution = Fixed Cost + Profit
Contribution = $2,000+4,000
Contribution = $6,000
Varaible cost = 0.03 per sheet
Total sheets = 20,000
Total Variable cost = 0.03*20,000
Total Variable cost =$600
Sales = Variable cost + Contribution
Sales = $600+$6000
Sales = $6,600
Selling price = $6,600/20,000
Selling price = 0.33

2.

Particulars	Amount	Per unit
Sales(20,000 units)	$    6,310	0.3155
Variable cost	$        600	0.0300
Contribution	$    5,710	0.2855
Fixed Cost ($2,000-290)	$    1,710
Profit	$    4,000

*BEP in units = Fixed cost /Contribution margin = #1,710 / 0.2855 = 5900 units.

3. Break-even in % =(Break even in quantity / Total capacity in quantity)*100 =

  Break-even in % =(5,900/35,500)*100 = 16.62%

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