Question

PLEASE SHOW THE PROCESS AND FINAL RESULTS

1) Management salaries - $650,000

Rental of Factory - $500,000

Cost of Materials - $7.00

Cost of production - $10.00

Cost of supplies - $3.00

Insurance - $50,000

Equipment - $400,000

Advertising - $400,000

Unit price = $100

a) Calculate Total Fixed costs

b) Calculate Unit Variable Costs

c) Calculate Break-even points in units

2) Loans - $1.6 billion

Average Interest rate on bank loans – 10%

Royalties - $5.00

Cost of materials - $8.00

Insurance - $50 million

Equipment - $18 million

Advertising - $45 million

Management salaries - $27 million

Lease Rental Expense - $100 million

Unit ticket price - $45

a) Calculate total interests to pay  

b) Calculate Total Fixed costs (including interests paid)

C) Calculate Unit Variable costs

D) Calculate Break-even point in number of visitors (units)

E) Will it make break even if there are 11million visitors in the first year?

F) What is the breal-even point if there is only half a billion bank laons?  

Answer 1

A) Total fixed cost

Total Fixed Cost =Factory Rent+Insurance+Equipment cost+Management salaries+Advertising

=500,000+50,000+400,000+650,000+400,000

=20,00,000

Fixed cost means the cost that does not changes with change in production Quantity.

Assuming all the above cost included in calculation of fixed cost does not vary with change in the production quantity.

B) VARIABLE COST (P.U)

Variable cost (per unit) =cost of material +cost of supplies+cost of production

=7+3+10

=20

C)BREAK EVEN QUANTITY

Break even quantity =Fixed cost divided by contribution per unit

=20,00,000 divided by 80 (refer note1)

Break even Quantity= 25000 units

Note1: Contribution per unit=Selling price-Variable cost

=100-20

Contribution per unit =80