Question

You want to calculate your breakeven point on the hydroponic business you are considering starting. From...

You want to calculate your breakeven point on the hydroponic business you are considering starting. From the analysis you used in your business plan,
• unit cost per system of $125 and selling price of $250
• fixed costs to run the business (rent, salary, overhead, and Selling, General and Administrative costs or SG&A) of $12,000/year.
How many systems to you need to sell to break even? Investors like to know these values. Why?
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Homework Answers

Answer #1

Contribution per unit (L) = SP – C per unit

                                    = 250 – 125

                                    = 125

BEP (units) = Fixed cost / L

                    = 12,000 / 125

                    = 96 (Answer)

Why?

This is required by an investor to know how many units are needed to be produced for making a profit. Here, the investor needs to produce 97 units to make profit, since before that either there is non-profit-no-loss (at 96 units) or only loss (before 96 units).

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