Question

Cox Electric makes electronic components and has estimated the following for a new design of one of its products:

Fixed Cost = $11,000

Material cost per unit = $0.15

Labor cost per unit = $0.10

Revenue per unit = $0.65

Production Volume = 12,000

Per-unit material and labor cost together make up the variable cost per unit. Assuming that Cox Electric sells all it produces, build a spreadsheet model that calculates the profit by subtracting the fixed cost and total variable cost from total revenue, and answer the following questions.

(a)	Construct a one-way data table with production volume as the column input and profit as the output. Breakeven occurs when profit goes from a negative to a positive value; that is, breakeven is when total revenue = total cost, yielding a profit of zero. Vary production volume from 5,000 to 50,000 in increments of 5,000. In which interval of production volume does breakeven occur?
_______	to _______ units
(b)	Use Goal Seek to find the exact breakeven point. Assign Set cell: equal to the location of profit, To value: = 0, and By changing cell: equal to the location of the production volume in your model.
_________

Answer 1

a.

Contribution per unit = Revenue per unit - Variable cost per unit

= $0.65 - $0.15 - $0.10

= $0.40 per unit

Particulars/Units	5000	10,000	15,000	20,000	25,000	30,000	35,000	40,000	45,000	50,000
Contribution per unit	0.4	0.4	0.4	0.4	0.4	0.4	0.4	0.4	0.4	0.4
Units	5000	10,000	15,000	20,000	25,000	30,000	35,000	40,000	45,000	50,000
Total Contribution	2000	4000	6000	8000	10,000	12,000	14,000	16,000	18,000	20,000
Fixed Costs	(11,000)	(11,000)	(11,000)	(11,000)	(11,000)	(11,000)	(11,000)	(11,000)	(11,000)	(11,000)
Net profit	(9000)	(7000)	(5000)	(3000)	(1000)	1000	3000	5000	7000	9000

So, Break even point is between the range of 25,000 units to 30,000 units

b.

Break even point = Fixed Costs/Contribution per unit

= 11,000/0.40 per unit

= 27,500 units