Question

. DCK (Pty) Ltd produces a single product. You were given the following information regarding the product: Pula (per unit) Selling price 60.00 Variable production costs 12.00 Variable selling cost 4.00 Fixed production cost 40.00 Fixed selling cost 8.00 Budgeted production is 10,000 units. Required: Determine the following: a. Breakeven point in units b. Number of units to be sold if the company wants to achieve a profit of P110,000. c. Breakeven point in Pula, if the variable production cost and selling price per unit are expected to rise by 10% and the fixed production costs rise by 25%. All other costs remain the same

Answer 1

Variable costs per unit = 12 + 4 = 16

Fixed costs = (40+8)*10,000 = 480,000

Breakeven point in units = Fixed cost/Contribution margin per unit = 480,000/(60-16) = 10,909 units

Units needed to be sold = (Fixed costs + Target profit)/Contribution margin per unit = (480,000+110,000)/(60-16) = 13,409 units

New variable production cost = 12 + 10% increase = 13.20 New selling price = 60 + 10% increase = 66 New contribution margin per unit = 66 - (13.20+4) = 48.80 New fixed cost = [(40+25%)+8]*10,000 = 580,000 Breakeven point = Fixed cost/New contribution margin per unit = 580,000/48.80 = 11,885 units