Question

A business firm produces and sells a particular product. Variable cost is P30 per unit. Selling price is P40 per unit.
Fixed cost is P60,000. Determine the following:

a. Profit when sales are 10,000 units
b. The break-even point quantity and revenue
c. Sales when profits are at P9,000
d. The amount by which fixed is cost will have to be decreased or increased, to allow the firm to break even at sales volume of 500 units. Variable cost and selling price per unit remain constant.
e. The volume of sales to cover the fixed cost
f. Suppose that the firm want to break-even at a lower number of units, assuming that Fixed cost and Variable cost remain constant, how is the selling price affected?

Answer 1

Answer:

a.The profit is 40000 when sales are 10000 units.

b.Break-even point quantity and revenue=6000

c.When profits are at P9,000, sales are 6900

d.Fixed cost must decrease

e.The volume of sales to cover the fixed cost is 1500 units

f.If the firm want to break-even at a lower number of units, then the price will rice

Step-by-step explanation:

a.Profit is the difference between sales and cost

Profit= price* sales -((Variable cost * sales) +Fixed cost)

Profit when sales are 10000 units must be

P=40*10000-((30*10000)+60000)

P=400000-(300000+60000)=400000-360000

Profit=40000

The profit is 40000 when sales are 10000 units.

b.The break-even point quantity and revenue is when profit=0

So,  Profit= price* sales -((Variable cost * sales) +Fixed cost)

If profit is 0, then (Variable cost * sales) +Fixed cost =price* sales

30x +60000=40x

10x=60000

x=60000/10=6000

Break-even point quantity and revenue=6000

c. Profit= price* sales -((Variable cost * sales) +Fixed cost)

9000=40x -(30x +60000)=40x -30x -60000)

9000 +60000=40x-30x

69000=10x

x=6900 units

d. break even at sales volume of 500 units

(Variable cost * sales) +Fixed cost =price* sales

30*500+FC=40*500

1500+FC=2000

FC=2000-1500

FC=500 Fixed cost must decrease

e.The volume of sales to cover the fixed cost

To only cover fixed cost, sales have to be 60000

Fixed cost =price* sales

Sales=Fixed cost/price

Sales 60000/40=1500 units

f. If the firm want to break-even at a lower number of units, then the price will rice

Remember that break-even formula is

(Variable cost * sales) +Fixed cost =price* sales

Variable an fixed cost remain constant, if sales go down,  then price must go up.