PC-Build, Inc. has the following fixed and variable costs and revenue for the fi
ID: 2716675 • Letter: P
Question
PC-Build, Inc. has the following fixed and variable costs and revenue for the first year of its business. Using the data, draw the breakeven chart and comment on the results from the breakeven analysis:
Fixed Costs Items
Cost ($)
Office
6,000
Inventory
15,000
Advertising
50,000
Wages
80,000
Phone
3,000
Equipment
4,300
Insurance
8,000
Software
9,700
Video
5,500
Printing
4,500
Other
1,700
Total
187,700
The product has revenue of $885 per unit and variable cost of $515/unit.
Fixed Costs Items
Cost ($)
Office
6,000
Inventory
15,000
Advertising
50,000
Wages
80,000
Phone
3,000
Equipment
4,300
Insurance
8,000
Software
9,700
Video
5,500
Printing
4,500
Other
1,700
Total
187,700
Explanation / Answer
The breakeven point can be calculated by drawing a graph showing how fixed costs, variable costs, total costs and total revenue change with the level of output.
We first need to construct a chart with the output on horizontal axis and cost and revenue on the vertical axis. On this a horizontal fixed costs line as this does not change with the level of output and remains fixed.
Variable cost change with each level of production.
Fixed cost $ 187,700 Revenue per unit $ 885 Variable cost per unit $ 515 Breakeven in quantity = Fixed cost / contribution per unit=187,700 / (885-515) = 507
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