Question

Need to create a scenario where I am a enterprener/consultant, managing a small business (accounting frm) travel agency, financial consultant, s small retail store, a food chain, or an auto workshop. - I need to estimate costs. The following can be numbers you employ:

Fixed costs (estimate on a total basis) - Give some examples of fixed costs

Variable costs (estimate on a per unit basis)

PLEASE list individually

a) What would be the revenues (on a per unit basis)

The following are required:

1. Calculate the breakeven point in terms of number of units (quantify)

2. Calculate the breakeven point in terms o dollar amounts

3. What if you want to calculate the number of units that gives you an operating income of $10,000?

Appreciate a creative scenario in any of the above enterpreneral or consultant area. Thanks.

Answer 1

If we are managing a travel agency, the cost estimate of the firm would be ;

Fixed cost = $150000 (Fixed costs includes Fixed assets like furnitures, machines and equipments)

Variable cost = $12 per booking

Revenue = $37 per booking

1. The breakeven point in units = Fixed costs / Contibution (ie. Revenue - Variable costs) = $150000 / (37 - 12) = 6000 bookings

2. The breakeven point in dollar = Fixed costs * Selling Cost / Contibution = $150000 * 37 / 25 = $222000

3. The number of bookings to have an operating income of $10000 = (Fixed cost + expected Operating income)/ contibution = (150000 + 10000) / 25 = 6400 bookings

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