Question

You are an entrepreneur who is starting their own business. Devise a short “business” plan which describes your product, and your first year of operations. Your goal is to break even within your first year, how much of your product and at what cost do you need to sell it in order to achieve your goal?

Answer 1

"I am Producing wooden chairs. This is only product I am producing and selling and this is my first year of operations. I Expected to sell my product at $50 Per Chair. In outside of the market same type of chair with lower specialities sold at $65. Due to my special features , my product definitely make high demand and I hope definite success but due to first year of operation, my first target is to let the market, public know about my product, that's why I am selling at lower price of $50 Per chair. I calculated manufacturing cost per chair as follows Direct materials (Wood) 10.00 Direct Labor 7.00 Manufacturing Overheads Variable (Nails, glue, wax etc.) 3.00 Total Variable Manufacturing Cost Per Chair $ _ 20.00 A A A A My Fixed Costs are as follows Premises rent Salaries to staff other than Direct Labor Total Fixed Costs Per Year 20,000.00 20,000.00 40,000.00 Contribution Margin Per Unit = $50-$20 = $30.00 Breakeven Point Units = $40,000/$30 = 1333 So I need to produce 1334 units to get breakeven in my first year of business.

Breakeven Point is a level of sales where fixed costs are equal to Contribution Margin. Contribution Margin is equals to Sales minus variable costs. At Breakeven point, Net Operating Profit will be zero. Selling price should be capable to cover its variable manufacturing or production costs as well as portion of fixed costs. selling price determination is depends on demand for our product and manufacturing costs. To reach our goal, we have to take care of variable costs and selling price. Lower the variable costs or higher sale price, there will be higher contribution margin to cover up the fixed costs. Also focus on avoidable or unnecessary fixed costs to reduce fixed costs. To meet the goal of Breakeven within first year, we have to produce and sell products as follows Calculate Estimated Contribution Margin Per Unit = Unit Selling Price - Unit Variable Cost Then estimate total fixed costs. Units to be produced will be Breakeven Point in Units. Break Even Point in Units = Total Fixed Costs / Contribution Margin Per Unit If we sold Breakeven Point Units at our determined selling price in first year, we reached our goal of Breakeven in First year.