Question

In this current year Company has produced 300 widgets. Over the next 2 years production will increase by 25% more of the previous year. With each increase in production cost/unit will decrease 10% less of the previous year. Company’s present profit margin is 30%. Present cost/unit is $24. If price remains constant how many units will have to be sold in Year 3 of production to break even?

Answer 1

	year 1	year 2	year 3
unit produced	300	375	468
sale 34.28	10286	12855	16043
less - variable cost @12	(3600)	(4050)	(4549)
contribution	6686	8805	11494
less- fixed cost 12	(3600)	(3600)	(3600)
profit	3086	5205	7894

profit margin given 30% for current year and total cost is 7200 so this cost is equal to 70%

7200/70*100 = 10286 it is a sales for current year

10286/ 300 = 34.28 sale price per unit , this price will same every year

here we have given present cost 24 / unit . but in this cost variable and fixed cost both include

total cost per unit	year 1	year 2	year 3
per unit	24	21.6	19.44
unit poduced	300	375	468
total cost	7200	8100	9098

variable Cost = (Change in Costs) / (Change in Quantity)

. =8100-7200/375-300 = 12 is a variable cost

variable cost = it wil decrese 10% every year so year 1 is 12 , year 2 is 10.8 and year 3 is 9.72

so in total 24 cost = 12 is variable cost and 12 is a fixed cost

calculation of fixed cost = 12*300 = 3600 this fixed cost is fixed every year because when we produced more unit or less unit fixed cost will not change its fixed.

BEP (unit) = fixed cost / contriution per unit

BEP(unit) for year 3 = 3600/24.55= 146.63 unit

here 24.55 is calculated = 11494/468