Break Even Assignment Problems

1. A manufacturing process has a fixed cost of$150,000 per month. Each unit is product being produced
contains $25 worth of material and takes $45 of labour. How many units are needed to break even if each
completed unit has a value of $90?

Solution:

Fixed Cost (FC) = $ 150,000

Selling Price (SP) = $90

Variable Cost (VC) = 25 + 45 = $70

𝐹𝐶
Q= = 150000 / (90 -70)
𝑆𝑃−𝑉𝐶
Q = 7500 units

2. Aldo Redondo drives his own car company business. His employer reimburses him for such a travel at the
rate of 36cents per mile. Aldo estimates that his fixed cost per year such as taxes, insurance and
depreciation are $2052. The direct or variable costs such as gas, oil and maintenance average about 14.4
cents per mile. How many miles must he drive to break even?

Solution:

Fixed Cost (FC) = $2052

Variable Cost (VC) = 14.4 c = 0.144$

Selling Price (SP) = 36c = 0.36$

𝐹𝐶
Q= = 2052 / (0.36 -0.144)
𝑆𝑃−𝑉𝐶
Q = 9500 units

Break-even miles = 9500 miles.

3. A firm is selling two products chairs and bar stools, at $50 per unit. Chairs have a variable cost of $25 and bar
stools $20. Fixed cost of the firm is $20,000.
a. If the sales mix is 1:1 (one chair sold for every bar stool sold), what is the break-even point in dollars of
sales? In units of chairs and bar stools?
b. If the sales mix changes to 1:4 (one chair sold for every four bar stools sold), what is the break-even
point in dollars of sales? In units of chairs and bar stools?

Solution:

Selling price of chair (SP-C) = $50

Selling price of bar stool (SP-B) = $50
Variable cost of Chair = $25
Variable cost of bar stool = $20
Fixed Cost (FC) = $20,000
PART –A: Sales Mix 1:1
𝐹𝐶 20000
Q= = = 20000/(55) = 363.63
𝑆𝑃−𝑉𝐶 (50+50)−(25+20)

Q = 364 units.
Q ($) = 364*100 = $36,400
PART –B: Sales Mix 1:4

Sales Price = 50 * 5 = 250

Variable Cost = 25+(20 * 4) = 105

𝐹𝐶 20000
Q= = = 20000/145 = 137.93 chairs
𝑆𝑃−𝑉𝐶 (250)−(105)

Q(b) = 137.93 * 4 = 551.72 bar stools.

1 chair + 4 bar stool = 50 + 200 = 250

Break-even ($) = 138 * 250 = $34,500

4. Owen Conner works part-time packaging software for the local distributing company in Indiana. The annual
fixed cost is $10,000 for this process, direct labour is $3.50 per package, and material is $4.50 per package.
The selling price will be $12.50 per package. How much revenue do we need to take in before breaking
even? What is the break-even point in units?

Solution:

Fixed Cost (FC) = $10000

Selling Price (SP) = $12.50

Variable Cost (VC) = 3.50 + 4.50 = $8

𝐹𝐶
Q= = 10000/(12.50 – 8)
𝑆𝑃−𝑉𝐶
Q = 2222.22

a. Revenue to take in before break-even = 2222 * 12.50 = $27,775.

b. Break even in units = 2222 units