Question

Problem # 1: Assume that as an investor, you are planning to enter the construction industry as a panel formwork supplier. The potential number of forthcoming projects, you forecasted that within two years, your fixed cost for producing formworks is 300,000. The variable unit cost for making one panel is $15. The sale price for each panel will be $25. How many panels you need to sell in total, in order to start making money?

Answer 1

Here we need to calculate the break even unit for panels. At break even units, there will be no profit no loss. So, after the break even units, we will start making money. For calculation of break even units, we need to calculate contribution margin per unit as below:

Contribution margin per unit = Selling price per unit - Variable cost per unit

Contribution margin per unit = $25 - $15 = $10

Now, Break even units = Fixed cost / Contribution margin per unit

Putting the values in the above formula, we get,

Break even units = $300000 / $10 = 30000

So, we should sell more than 30000 units to start making money.