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-   -   Getting negative number for break-even dollars (https://www.askmehelpdesk.com/showthread.php?t=449167)

  • Feb 19, 2010, 05:42 PM
    Joaquina
    getting negative number for break-even dollars
    The scenario is the following:

    You want to open up a custom skateboard shop. You can sell each skateboard for $160. It takes 3 hours to make each skateboard. Each skateboard maker earns $25 per hour. Each skateboard costs $15 in raw materials. You estimate that your fixed costs are $20,000 per month.

    What is the break-even dollar amount?

    I have done this:

    BE$= FC / (1 – (VC/P))
    BE$= 20,000/ (1-(160/90))
    BE$= -25,714.29

    I got VC=90 since:
    $15 in raw materials + ($25 x 3 hrs that take to make 1 skateboard) = $90

    But I know I'm doing something wrong since there's no logic in getting a negative number for the break-even dollars.

    Help?
  • Feb 21, 2010, 01:03 AM
    morgaine300

    You're right that there's no logic in it. You can't sell a negative amount.

    Take another look at this:
    Quote:

    BE$= FC / (1 – (VC/P))
    BE$= 20,000/ (1-(160/90))
    Did you follow the equation?

    There's also another way to do it without using percentages:
    FC/CM
    CM (contribution margin) = price - variable
    That gives you break even in units and then * 160 price.

    You've done it using CM as a percentage. You are going to need to know the unit break even equation anyway.

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