Question

TD Toiletries has developed an addition to its Lizardman Cologne line, tentatively named Eau de Toad Cologne. Unit variable costs are $3.25 for a 3 ounce bottle. Heavy advertising costs in the first year would contribute to an overall fixed cost figure of $900,000. If the cologne is priced $18.50 per bottle, how many bottles of Eau de Toad must be sold to break even? What is the dollar sales figure for break even?

Answer 1

a.	Break even point			59,016	Bottles
b.	Break even point			$ 10,91,803
Working:
	Break even point is the level at which company neither earns profit nor incurrs loss.
a.	Break even point in unit sales			=	Fixed Cost / Cotribution Margin Per unit
				=	$          9,00,000	/	$    15.25
				=	59,016
b.	Contribution Margin Per unit			=	Sales Price per unit - Variable cost per unit
				=	$ 18.50	-	$       3.25
				=	$ 15.25
c.	Break even point in dollar sales			=	Fixed Cost / Contribution Margin Ratio
				=	$          9,00,000	/	82.43%
				=	$        10,91,803
d.	Contribution Margin Ratio			=	Contribution Margin/ Sales revenue
				=	$ 15.25	/	$    18.50
				=	82.43%