Question

Shock Electronics sells portable heaters for $31 per unit, and the variable cost to produce them is $20. Mr. Amps estimates that the fixed costs are $93,500.

a. Compute the break-even point in units.
bREAK EVENT POINT-
    
b. Fill in the following table (in dollars) to illustrate that the break-even point has been achieved.
  

sALES-

fIXED c OST-

TOTAL VARIABLE COST-

NET PROFIT(LOSS)-

Answer 1

a) Break even point in units = Fixed cost / (Sales price - Vatiable cost)

Here,

Fixed cost = $93,500

Sales price = $31 per unit

Variable cost = $20 per unit

Now

Break even point = $93,500 / ($31 - $20)

Break even point = $93,500 / $11

Break even point = 8,500 units

b) Illustration that the break even point has been achieved.

Sales (8,500 units * $31) = $263,500

Less : Fixed cost. = $93,500

Less : Variable cost (8,500 * $20) = $170,000

Net profit or loss. = Nil

Note : Break even point is the point where company has no profit or no loss.