Question

Samantha and Baxter start a business that manufactures cutting tools. They sell the tools for $80 each. Their monthly

fixed costs are $3800 for the building lease and utilities and $2800 for salaries. The cost of supplies for each tool is $12.

a. To break even, how many tools do they have to sell every month?

b.If the cost of supplies for each tool is reduced to $10 and they hire one more person for $2000 per month, calculate

the minimum number of tools that they would have to sell to ensure that they do not incur a loss.

Use Formulas:

Total Variable Costs: TVC=VC x X

Total Costs: TC=FC+TVC

Total Revenue: TR=S x X

Net Income: NI=TR-TC

At Break-Even Point: TR=TC

Contribution Margin per unit: CM=S-VC

Contribution Ratio: CR= CM/S x 100%

Cost-Volume-Profit Analysis: S x X= FC+(VC x X)+NI

Number of Units: x= FC+NI/(S-VC) or x= FC-NI/(S-VC)

Break-Even as a percent of capacity=Break-Even Volume/ Capacity x 100%

Answer 1