Break-Even Units

maandpa1227 · #1 Aug 25, 2007, 02:01 PM

I am trying hard to solve these problems. I really want to understand what I am doing with limited ability. Please let me know if I am going in the right direction.

The company sells shovels for $27.75 each. The variable cost per shovel is $14.25. The company's monthly fixed costs are $2,538. Compute the number of shovels the company must sell to break even.

14.25 / 2,538 = 178

Number of shovels company must sell = 178 to break even

27.75 x 178 = 4940

At a total sales of = $4940.00

Thank you.

maandpa1227 · Aug 26, 2007, 08:12 AM

Quote:

Originally Posted by CaptainForest

Sales Price 27.75
Less VC 14.25
CM = 13.5
Less FC 2,538
NI 0

13.5x – 2,538 = 0
x = 2,538 / 13.5
x = 188

Therefore, to BE the company must sell 188 units per month.

Sales Value = 188 x 27.75 = 5,217

I see what happened. I should have subtracted the VC from the sales price which would have given me the CM = 13.5 and divided the the CM from the FC which was the 188 figure. Then multiplied the number of shovels by the 27.75/each.

Thank you. I will continue to work with this problem until the formula is clear but I do see what I did and what you did which helps to understand the solution.



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