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    challenge mather's Avatar
    challenge mather Posts: 19, Reputation: 1
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    #1

    Mar 29, 2008, 01:18 PM
    Compute Break Even point
    Therapeutic Systems sells its products for $8 per unit has the follow costs:
    Rent... $120,000
    Factory Labor... $1.50 per unit
    Executive under contract... $112,000
    Raw material... $.70 per unit

    Separate the expenses between fixed and variable coss per unit. Using this information and the sales price per unit of $6, compute the break even point.
    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
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    #2

    Mar 29, 2008, 04:21 PM
    Ok.

    Please make an attempt.

    Then we will assist you.
    challenge mather's Avatar
    challenge mather Posts: 19, Reputation: 1
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    #3

    Mar 30, 2008, 06:28 AM
    Rent is fixed cost
    Labor variable
    executive fixed
    raw material variable
    FC(rent) 120,000 divided by (P)$6-(VC)raw material .70 =
    120,000 divided x = 22
    5.30


    This is what confuses me I am not sure what to use for variable and fixed since rent and raw material are two separate issues. Please help more!
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #4

    Mar 30, 2008, 04:57 PM
    You have correct what all is fixed and variable. And your break-even equation is correct.
    (i.e. fixed costs divided by contribution margin) However, you're not including both of your variable costs, but only materials. You have two variable costs: materials and labor. Ditto the fixed. You have two of those also: rent and executive. You're trying to do the break-even based on only the rent for fixed and only material for variable. You have count all the costs in.

    i.e. your variable costs are 2.20 not .70.

    See what I mean?
    challenge mather's Avatar
    challenge mather Posts: 19, Reputation: 1
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    #5

    Mar 31, 2008, 06:28 PM
    Yes, so the final answer is
    FC 232,000 232,000
    P - VC, $8.00 - $2.20 = $5.80 = 40.000 units BE
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #6

    Apr 4, 2008, 03:28 PM
    Yes, it's correct. Except you need to decide if selling price is $8 or $6, since you've now used both.
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