In: Accounting
Given the fixed and variable costs your team has identified and agreed upon, compute the break-even point for this business in either units or dollar sales.
Fixed Costs For a Retail Store Selling DVDs
Rent - 3,000 a month
Insurance - 100 a month
Employee Salaries (Unless we have Hourly Employees Let's say 3 Employees working 40 Hours at 13 an hour) - 6,240 / month
Loan Payment (For furniture, starting up) 1000 a month
Variable Costs
Utilities per month 300
Shipping or delivery costs 600
Sales commissions 500
Given that the fixed and variable costs has been identified and agreed upon.
Assuming that shipping cost and sales commissions are per month.
It is asked to compute the break-even point for the business.
Break-even point is the point where the profit/loss is Nil.
As per the variable costing,
Revenue – Variable cost = Contribution.
Contribution – Fixed cost = Profit/(loss).
So, at break-even point, as profit/loss will be zero, fixed cost equals to Contribution.
From the given inputs we can calculate the Contribution from the fixed cost.
Fixed costs per month: |
|
Rent |
$3000 |
Insurance |
$100 |
Employee salaries |
$6240 |
Loan payment |
$1000 |
Total |
$10340 |
At break-even point, contribution equals to fixed cost.
So, Contribution = $10340 per month.
We know that Revenue - Variable cost = Contribution.
Therefore, Revenue = Contribution + Variable Cost.
Variable Costs per month: |
|
Utilities per month |
300 |
Shipping or delivery costs |
600 |
Sales commissions |
500 |
Total: |
1400 |
Sales revenue = Contribution + Variable cost
= 10340 + 1400
= $11740
Therefore, the break-even point for the business in dollar sales = $11740 per month.