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New Member
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Mar 29, 2008, 01:18 PM
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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.
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Ultra Member
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Mar 29, 2008, 04:21 PM
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Ok.
Please make an attempt.
Then we will assist you.
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New Member
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Mar 30, 2008, 06:28 AM
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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!
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Uber Member
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Mar 30, 2008, 04:57 PM
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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?
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New Member
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Mar 31, 2008, 06:28 PM
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Yes, so the final answer is
FC 232,000 232,000
P - VC, $8.00 - $2.20 = $5.80 = 40.000 units BE
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Uber Member
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Apr 4, 2008, 03:28 PM
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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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