Question

Assume the average unit sales price is $2.00 and the average unit cost is $1.10 for beverages.

Fixed costs for the business are $90,000 per year.

1. What is the breakeven point in unit sales?
2. What is the breakeven point in total sales dollars?
3. How much profit would they make if the sales price increased by 8% per unit, but all variable & fixed costs remained the same?
4. How much profit would they make if they increased sales volume by 10% and fixed costs remained the same?
5. How much profit would they make if they increased sales volume by 10%, increased sales price 8% per unit, and fixed costs where lowered by 5%?
6. What is the effect of selling merchandise along with beverages on breakeven?

Answer 1

BREAK-EVEN POINTS:

UNIT SALES = Fixed Costs ÷ (Sales price per unit – Variable costs per unit)

= 90000 / 0.90

= 100,000 units.

TOTAL SALES DOLLARS = Fixed Costs ÷ Contribution Margin.​

= 90000 / (100,000 x 0.90)

= $1

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(B) IF SALES PRICE INCREASED BY 8%

Current sales price = $2 per unit

Increase (@8%) = $0.16

New sales price = $2.16 per unit.

SALES	2,16,000
Variable costs	(1,10,000)
Fixed Costs	(90,000)
PROFIT	16,000

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(C) INCREASE IN SALES VOLUME BY 10%

Old sale volume = 100,000 units

Increase (@10%) = 10,000 units

New sales volume = 110,000 units.

SALES	2,20,000
Variable costs	1,21,000
Fixed Costs	90,000
PROFIT	9,000

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(D) INCREASE IN SALES PRICE @8% & SALES VOLUME @10% & DECREASE IN FIXED COSTS @5%.

New sales price = $2.16 per unit.

New sales volume = 110,000 units.

New fixed costs = $85,500

SALES	2,37,600
Variable costs	1,21,000
Fixed Costs	85,500
PROFIT	31,100

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