The local convenience store makes bread. Currently, their oven can produce 50 pi

Question

The local convenience store makes bread. Currently, their oven can produce 50 pieces of bread per hour. It has a fiixed cost of $2,000, and a variable cost of $0.25 per bread. The owner is considering a bigger oven that can make 75 pieces of bread per hour. It has a fixed cost of $3,000, but a variable cost of $0.20 per piece of bread.

The price per bread is $5. The current break-even points in units is:

The current break-even point in dollars is:

The new break-even point in units will be:

The new break-even point in dollars will be:

If the owner expects to sell 9,000 pieces of bread and changes the oven, will profit change? If so, by how much?

Explanation / Answer

Okay, don't freak out.

You have everything you need, you just need the formulas.

So you need breakeven formula for units = Fixed Cost/Contribution per unit

where, contribution = (selling price per unit - variable cost per unit); and then,

breakeven in dollars = (fixed cost * selling price (per unit)) / contribution per unit.


Remember to find fixed costs use formula where: TC (total cost) = FC (fixed cost) +VC (variable cost).

so there is the first part.

Then, for contribution questions use:

Contribution Margin = sales - variable costs.

Contribution Margin Ratio = (sales - variable costs)/sales.

Then for margin of safety:

margin of safety = (current output - breakeven output)
margin of safety% = (current output - breakeven output)/current output x 100

Remember if it asks for ratio, it wants a percentage in most cases.

Now for the last one just use the formula/definition for net income, which is something like Total Revenues-Sales - Total Costs = net income.

So plug in your revenues from above and net income of $158,368 to get answer.

Great job. you just were thinking too hard and forgot to go back and get the basic formulas.

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