Question

Monthly fixed cost: 10 000,-

Variable cost: 15,-/customer

Volume: 1 500 customers per month

Price: 25,-/customer

When business started, there came only 800 customers/month.

However, fixed cost was only 5000,-.

a)Break-even?

b)Profit?

c)How much should the price be to reach the original target in this situation with 800 customers?

Answer 1

Requirement (a)

Answer---Breakeven in units = 500 units

Breakeven in Dollars= $12,500

Working
A	Sale Price per unit	$           25.00
B	Variable Cost per Unit	$           15.00
C=A x B	Unit Contribution	$           10.00
D	Total Fixed cost	$     5,000.00
E=D/C	Breakeven point in units	500.00
F= E x A	Breakeven in sales dollars	$   12,500.00

Requirement (b)

Answer---$3,000

Income Statement
Sales (25*800)	$   20,000.00
Variable Cost (15*800)	$   12,000.00
Contribution margin	$     8,000.00
Fixed Cost	$     5,000.00
Income	$     3,000.00

Requirement (c)

Answer—$ 27.50

Original target
Sales (1500*25)	$ 37,500.00
Variable Cost (1500*15)	$ 22,500.00
Contribution margin	$ 15,000.00
Fixed cost	$ 10,000.00
Net income	$    5,000.00

A	Fixed cost to be recovered	$     5,000.00
B	Variable cost to be recovered (800*15)	$   12,000.00
C	Profit to be earned	$     5,000.00
D=A+B+C	Total revenue	$   22,000.00
E	Number of customers	800
F=D/E	Price to be charged	$           27.50

Alternative solution for part C is also given below assuming $10000 fixed cost.

B	Variable cost to be recovered (800*15)	$   12,000.00
C	Profit to be earned	$     5,000.00
D=A+B+C	Total revenue	$   27,000.00
E	Number of customers	800
F=D/E	Price to be charged	$           33.75