Question

2. You’ve a small business that bakes and sells home-made pies for sale to homes and supermarkets. The annual fixed costs are N$10,000, direct labour is N$3.50 per pie, ingredients are N$4.50 per pie and the selling price is N$12.50 per pie.

Determine UBEP and MBEP

Answer 1

Fixed Costs = 10000

Selling Price = 12.50

Variable Cost per Unit = Labor Cost + Ingredient Cost

Variable Cost per Unit = 3.50 + 4.50 = 8.00

Contribution Margin = Selling Price - Variable Cost = 12.50 - 8.00 = 4.50

Contribution Margin Ratio = (Selling Price - Variable Cost)/Selling Price = (12.50-8.00)/12.50 = 4.50/12.50

BEP in Units = Fixed Cost / Contribution Margin

BEP in Units = 10000/4.50

BEP in Units = 2222.22 units

BEP in $ = Fixed Cost / Contribution Margin Ratio

BEP in $ = 10000/(4.50/12.50)

BEP in $ = $ 27777.78