Question

DCK (Pty) Ltd produces a single product. You were given the following information regarding the product: Pula (per unit) Selling price 60.00 Variable production costs 12.00 Variable selling cost 4.00 Fixed production cost 40.00 Fixed selling cost 8.00 Budgeted production is 10,000 units.

Required: Determine the following: a. Breakeven point in units b. Number of units to be sold if the company wants to achieve a profit of P110,000. c. Breakeven point in Pula, if the variable production cost and selling price per unit are expected to rise by 10% and the fixed production costs rise by 25%. All other costs remain the same.

Answer 1

Selling Price = 60

Variable cost = 12 (Variable production cost) + 4 (variable selling cost) = 16

Fixed cost = 40 (fixed production cost) + 8 (fixed selling cost) = 48

Total fixed cost = 48 x 10,000 = 480,000

Contribution per unit = selling price - variable cost

60 - 16 = 44

Budgeted production 10,000 units

a. Break even point in units

Break even point = Total Fixed costs / Contribution per unit

480000 / 44

Break even point = 10910 units.

b. If the company wants to achieve a profit of 110,000

Units to achieve targeted income = (Total Fixed cost + Targeted income) / Contribution per unit

( 480,000 + 110,000) / 44

= 13,409 units.

c.

Selling price 10% increase = 66

Variable production cost 10% increase = 13.2

Fixed production cost increase 25% = 50

All other cost remains same

Total variable cost = 13.2 + 4 = 17.2

Fixed cost 50 + 8 = 58

Total fixed cost = 58 x 10,000 = 580,000

Contribution per unit = Selling price - variable cost

66 - 17.2 = 48.8

Break even point = Fixed cost / contribution per unit

580,000 / 48.8 = 11885 units