Jul 052012
 

Often a firm will calculate the break-even point for a price. That is, if we set the price at $X, then how many units will we need to sell to cover costs (that is, our break-even point). Work through the following two examples to gain a better understanding of this approach.

 

ACTIVITY/TASK

Using break-even analysis:

  1. How many units need to be sold to break-even if the product is sold for $30?
  1. How many units need to need to be sold to break-even if the product is sold for $15?

No. of Units

Allocated Fixed Costs

Variable Cost/Unit

Total Production

Cost

Average Unit Cost

Unit Price

Total Sales Revenue

Gross Profit

500

$10,000

$10

1,000

$10,000

$10

1,500

$10,000

$10

2.000

$10,000

$10

2,500

$10,000

$10


QUESTIONS

  1. Start by completing the above table.
  2. How would the firm use this break-even information?
  3. What do you think you would set first: the sales target or the price? Why?

 

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