Thread: Determining the break even point

Hey guys! New to the site, I have a midterm in 7 hours... This is my problem:

1) The variable-cost of a manufacturing a new product is $150.00 and the total fixed costs for the factory are $100,000. If the marketing department expects to sell 800 units,
A) What price must be charged per unit to just break-even
B) Given new sales estimates are 1,000 what price must be charged to make a profit of 20, 000

Thanks for the help!

Hello Haqq

Originally Posted by Haqq

Hey guys! New to the site, I have a midterm in 7 hours... This is my problem:

1) The variable-cost of a manufacturing a new product is $150.00 and the total fixed costs for the factory are $100,000. If the marketing department expects to sell 800 units,
A) What price must be charged per unit to just break-even
B) Given new sales estimates are 1,000 what price must be charged to make a profit of 20, 000

Thanks for the help!

Share the fixed costs out among the units sold (or expected to be sold) to work out a cost per unit. Add this to the manufacturing cost per unit. Then add any profit, to get the price to be charged per unit.

So in (A), the fixed cost per unit = $100,000/800 = $125.00. Add variable cost: $125.00 + $150.00 = $275.00 per unit. This is the price that must be charged to break even.

Now do (B) in the same way, working out the profit per unit and adding this on to the total cost per unit.

Can you complete this now?

Grandad

Originally Posted by Grandad

Hello HaqqShare the fixed costs out among the units sold (or expected to be sold) to work out a cost per unit. Add this to the manufacturing cost per unit. Then add any profit, to get the price to be charged per unit.

So in (A), the fixed cost per unit = $100,000/800 = $125.00. Add variable cost: $125.00 + $150.00 = $275.00 per unit. This is the price that must be charged to break even.

Now do (B) in the same way, working out the profit per unit and adding this on to the total cost per unit.

Can you complete this now?

Grandad

Okay,

For (B)

It would be

Now I'm a little confused what do I now? Or did I make a mistake?

Hello Haqq

Originally Posted by Haqq

Okay,

For (B)

It would be

Originally Posted by Haqq

Now I'm a little confused what do I now? Or did I make a mistake?

Correct so far. Now add on the profit required per unit: $20.00. Total price to charge: $270.00

Grandad