Question

In: Accounting

Monthly fixed cost: 10 000,- Variable cost: 15,-/customer Volume: 1 500 customers per month Price: 25,-/customer...

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?

Expert Solution

Requirement (a)

Answer---Breakeven in units = 500 units

Breakeven in Dollars= $12,500

Working
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

ekkarill92 answered 2 years ago

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