Question
In: Accounting
The RV company, engaged in the fabrication of automobile engine part with production capacity of 700,000...
The RV company, engaged in the fabrication of automobile engine part with production capacity of 700,000 units per year, is only operating at 65% capacity due to unavailability of the necessary foreign currency to finance the importation of their raw materials. The current annual income is P450,000; annual fixed costs are P190,000 and variable cost are P0.35 per unit. A) What is the current profit/loss? B) What is the breakeven point in units and in pesos? C) Draw the breakeven chart.
Solutions
Expert Solution
Present production is 65 % of 700,000
==>455,000 units
Annual income ==> P450,000.
Annual fixed cost ==> P190,000
Variable cost ==> P0.35 per unit.
For 455,000 units variable cost
==> P0.35*455,000
==> 159,250.
Total Cost ==> P190,000 + P159,250 ==> P349,250.
Answer A)
Current Profit
==> Annual income-Total annual cost
==> P450,000-P349,250
==> P100,750.
B)
Break even point
==> Fixed cost/(Sale Price-Variable cost)
At 455,000 units and Revenue of P450,000. per unit
sale price ==> 450,000/455,000 ==> 0.99
Break even point ==> 190,000/(0.99-0.35)
==> 190,000/0.64
==> 296,875 units.
Break even sales
==> 296,875*0.99
==> P293,906.
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