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The annual fixed costs for a plant are $100,000, and the variable costs are $140,000 at 70% utilization of available capacity, with net sales of $280,000. What is the breakeven point in units of production if the selling price per unit is $40

Answer :

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Answer:

With the production 5000 units the plant will achieve it's break even point

Explanation:

Solution

The break even points is the point in a business when the total revenue is exactly the same to the equal expenditure.

The formula is given below:

D' = Cy/(p-cy)

Here

D' =the demand at break even point

p = the selling price

cy= the variable costs per unit

Cy = the total fixed cost

Thus

The total cost of the plant = $100,000

The variable costs = $140,000

The net sales = $280,000

The selling price per unit = $40

The total no units sold per year is given as :

Annual sale (units) = Total sales/Sale per unit

Now,

By the method of substitution we have the following.

Annual sale (units)  = $280,000/40

=7000 units/year

The formula for  variable cost  per unit cy is

cy = Cy/Annual sale (units)

Now,

We substitute in the above equation the value of Cy as $140,000 and annual sale as 7000 units/per year

cy = $140,000/7000

=$20 units

For the demand at break even point D', we have the following:

D' = Cy/(p-cy)

We We substitute in the above equation the value of Cy as $100,000 and p as $40/unit and cy as $20 /unit

D' = 100000/(40 -20)

=5000 units/year

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