Sales revenue (100,000 units at 10each) $10,000,000 Factory cost of good sold: D

Question

Sales revenue (100,000 units at 10each)                                             $10,000,000 Factory cost of good sold: Directmaterial                                          $100,000 Directlabour                                             $350,000 Variable factoryoverheads                        $60,000 Fixed factoryoverheads                           $220,000      $730,000 Administrationoverheads                                               $140,000      Selling and distribution overhead: Sales commission (2% ofsales)                 $20,000 Deliver costs (variable p.usold)                $50,000 Fixedcosts                                               $40,000        $110,000         $980,000 Profit                                                                                                      $20,000 My way of calculation is: I break down varibale costs by the number of unitssold (100,000), for example: Direct materials: $100,000/100,000 = $1 per unit Direct labour:     $350,000/100,000 =$3.50 per unit Variable factory overheads: $60,000/100,000 = $0.60 perunit Sales commission: 0.02 (given) Delivery costs: $50,000/100,000 = $0.50 per unit So my break-even point in sales: $10-(1+3.50+0.60+0.02+0.50) = $5.62 (total variablecost) Then. I use this formula: (Brek-even = Fixed costs/(Unitprice-Unit variable cost)*Unit price) Total fixed cost = ($220,000+$40,000+$140,000) =$400,000 (Break-even = $400,000/($10-$5.62)* $10)                     =913,242 Please help? Thank you kindly Sales revenue (100,000 units at 10each)                                             $10,000,000 Factory cost of good sold: Directmaterial                                          $100,000 Directlabour                                             $350,000 Variable factoryoverheads                        $60,000 Fixed factoryoverheads                           $220,000      $730,000 Administrationoverheads                                               $140,000      Selling and distribution overhead: Sales commission (2% ofsales)                 $20,000 Deliver costs (variable p.usold)                $50,000 Fixedcosts                                               $40,000        $110,000         $980,000 Profit                                                                                                      $20,000 My way of calculation is: I break down varibale costs by the number of unitssold (100,000), for example: Direct materials: $100,000/100,000 = $1 per unit Direct labour:     $350,000/100,000 =$3.50 per unit Variable factory overheads: $60,000/100,000 = $0.60 perunit Sales commission: 0.02 (given) Delivery costs: $50,000/100,000 = $0.50 per unit So my break-even point in sales: $10-(1+3.50+0.60+0.02+0.50) = $5.62 (total variablecost) Then. I use this formula: (Brek-even = Fixed costs/(Unitprice-Unit variable cost)*Unit price) Total fixed cost = ($220,000+$40,000+$140,000) =$400,000 (Break-even = $400,000/($10-$5.62)* $10)                     =913,242 Please help? Thank you kindly

Explanation / Answer

Your answer iscorrect Variable cost per unit =$5.68 Fixed Cost = $400000 Break-even in sales =$400000/($10-$5.68)*$10                               = $913,242 Note: you asssumedadministrative overhead as Fixed cost, but some administrative costare variable also like office lightining, office stationery etc.and some are semi variable like telephone charges etc. If administrative overhead in ques. given as variable cost or part ofit, is a variable, then we include in calculating variable cost perunit. If we take administrative cost as variable then administrativecost per unit is $140000/100000 =$1.4 Total variable cost is $5.68+$1.4 =$7.08 Fixed Cost =$220000+40000=$260000 Break-even sales=$260000/(10-7.08)*10                           =$8,90,411 you have to make foot note for taking administrative overheadas fixed cost or variable cost. Hope it will help you

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