Question

SanFrancisco Inc. manufactures computer supplies. San Francisco Inc. has variable expenses of $1.50 (for software) and $2.00 (for hardware) per unit. Assume that total fixed expenses are 15,000. The devices are sold for $9 each.

In the space below, first draw a blank “Break Even Chart/Graph” and then draw the fixed cost line.

Draw the “Total Cost Line” and the “Total Revenue” line on the chart (HINT: Make sure these lines intersect)

Now using the information provided above, calculate the Break Even Point. Label both the quantity and the $ amount on the chart. (HINT: To find the $ amount, multiply your break-even point quantity by the selling price).

Answer 1

Break even point = total fixed expenses/(selling price per unit - variable cost per unit)

= 15,000/( 9 - 1.50 - 2)

= 2,727.27 units (you can round this to 2727 units)

Break even $ = 2,727.27 units * $9 = $24,545 (in case units are rounded then break even $ will be 2727*9 = $24,543)

The graph is attached below:

In the above graph unit volumes are given in x axis and $ amounts (revenue and costs) are given in y axis. The lines are intersecting and the $ value and units quantity is also shown at point of intersection or the break even intersection. This is the intersection of the green line (total revenue) and the red line (total cost).