BREAK EVEN ANALYSIS QUESTION The Lade & Bach Company produces office chairs. The
ID: 1220838 • Letter: B
Question
BREAK EVEN ANALYSIS QUESTION
The Lade & Bach Company produces office chairs. The price of the chairs is $99.75 and the variable cost per chair is $49.75. The following fixed costs are incurred: Depreciation of plant and equipment per year $20, 000 Property taxes per year 12,000 Manager's salary and fringe benefits per 5,200 month Perform a breakeven analysis of this company: a. What is the total revenue function? b. What is the total cost function? c. What is the profit function? d. What is the breakeven point in number of chairs? e. What is the revenue at the breakeven point? f. What is the income at the breakeven point? g. Estimate the profit when 1,500 chairs are produced in a year. h. How many chairs must be sold for the company to make $75,000 in a year?Explanation / Answer
a. What is the total revenue function?
Total revenue = R x Q = 99.75Q.
b. What is the total cost function?
Total cost = FC + VC x Q = 94400 + 49.75Q
c. What is the profit function?
Profit per year = R x Q - (VC x Q + FC)
= 99.75Q - (49.75Q + 94400) = 50Q - 94400.
d. What is the breakeven point in number of chairs?
QBEP = FC/(R - VC) = 94400/50 = 1,888 chairs
e. What is the revenue at the breakeven point?
Revenue at the break-even point = 99.75(1888) = $188,328
f. What is the income at the breakeven point?
Income at the break-even point = $0
g. Estimate the profit when 1,500 chairs are produced in a year.
Profit at 1,500 chairs = 50(1500) - 94400 = -$19,400, which is a net loss
h. How many chairs must be sold for the company to make $75,000 in a year?
Number of chairs = (SP + FC)/(R - VC) = (94400 + 75000)/50 = 3,388 chairs
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