#2. Break-even Analysis Exercise-Autos YOU MUST SHOW YOUR CALCULATIONS TO RECEIV
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Question
#2. Break-even Analysis Exercise-Autos
YOU MUST SHOW YOUR CALCULATIONS TO RECEIVE POINTS
Step 1: An automotive car dealership has $150,000 in fixed costs and variable costs per unit of $35,000. Cars sell on average for $50,000 each. What is the company’s breakeven point in terms of the number of cars that need to be sold to break even? (5 points)
Step 2: If the automotive dealership wants to make $125,000 profit, how many cars will it have to sell? (5 points)
Step 3: If the company can sell 30 cars, how much profit will the firm make? (5 points)
Explanation / Answer
Answer to STEP-1
Break Even Number of Units = Fixed Costs / Contribution per unit
Contribution per unit = Selling price per unit – Variable cost per unit
= $50,000 per unit - $35,000 per unit
= $15,000 per unit
Break Even Number of Units = Fixed Costs / Contribution per unit
= $150,000 / 15,000
= 10 Cars
Therefore, the company’s breakeven point in terms of the number of cars that need to be sold to break even is 10 CARS
Answer to STEP-2
Required number of cars need to sell to make a profit of $125,000
= [Fixed Costs + Desired Profit] / Contribution per unit
= [$150,000 + 125,000] / $15,000 per unit
= 18.33 Cars
= 18 CARS [Rounded to Whole Number]
Answer to STEP-3
Profit earned by selling 30 Cars = Total Contribution – Fixed Costs
= [30 Cars x $15,000 per unit] - $150,000
= $450,000 - $150,000
= $300,000
The Company will make a profit of $300,000 by selling 30 Cars
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