Given the fixed and variable costs your team has identified and agreed upon, com

ID: 2540637 • Letter: G

Question

Given the fixed and variable costs your team has identified and agreed upon, compute the break-even point for this business in either units or dollar sales.

Fixed Costs For a Retail Store Selling DVDs

Rent - 3,000 a month

Insurance - 100 a month

Employee Salaries (Unless we have Hourly Employees Let's say 3 Employees working 40 Hours at 13 an hour) - 6,240 / month

Loan Payment (For furniture, starting up) 1000 a month

Variable Costs

Utilities per month 300

Shipping or delivery costs 600

Sales commissions 500

Explanation / Answer

Given that the fixed and variable costs has been identified and agreed upon.

Assuming that shipping cost and sales commissions are per month.

It is asked to compute the break-even point for the business.

Break-even point is the point where the profit/loss is Nil.

As per the variable costing,

Revenue – Variable cost = Contribution.

Contribution – Fixed cost = Profit/(loss).

So, at break-even point, as profit/loss will be zero, fixed cost equals to Contribution.

From the given inputs we can calculate the Contribution from the fixed cost.

Fixed costs per month:

Rent

$3000

Insurance

$100

Employee salaries

$6240

Loan payment

$1000

Total

$10340

At break-even point, contribution equals to fixed cost.

So, Contribution = $10340 per month.

We know that Revenue - Variable cost = Contribution.

Therefore, Revenue = Contribution + Variable Cost.

Variable Costs per month:

Utilities per month

300

Shipping or delivery costs

600

Sales commissions

500

Total:

1400

Sales revenue = Contribution + Variable cost

= 10340 + 1400

= $11740

Therefore, the break-even point for the business in dollar sales = $11740 per month.