A company tends to sell the rice for £1 a kilogram. The variable cost of production...

A company tends to sell the rice for £1 a kilogram. The variable cost of production per kilogram is 60 pence and the fixed costs associated with this product are estimated to be £50000 a year. The company’s maximum output of rice will be 250,000 kg per year. Present graphically by drawing break-even charts for the company. Also illustrate numerically.

Expert Solution

Please find the below chart with profit/loss and units produced. Here the stage of no profit or loss is the break even point. we can understand that at the stage of units produced 125000 there is no loss or profit point. here to cover the fixed cost the company needs to produce minimum 125000 and above.

Total cost	Fixed cost	Variable cost	Units	sales @1pund	profit
65,000	50,000	15,000	25000	25000	-40,000
80,000	50,000	30,000	50000	50000	-30,000
95,000	50,000	45,000	75000	75000	-20,000
1,10,000	50,000	60,000	100000	100000	-10,000
1,25,000	50,000	75,000	125000	125000	-
1,40,000	50,000	90,000	150000	150000	10,000
1,55,000	50,000	1,05,000	175000	175000	20,000
1,70,000	50,000	1,20,000	200000	200000	30,000
1,85,000	50,000	1,35,000	225000	225000	40,000
2,00,000	50,000	1,50,000	250000	250000	50,000

For chart please find the uploaded chart

60,000 50,000 40,000 30,000 20,000 10,000 -10,000 20,000 30,000 -40,000 -50,000

The formula to calculate the Break even unit is as follows

Fixed cost/(Selling price per unit- variable cost per unit) that is 50000/(1-0.6)

ekkarill92 answered 2 years ago

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