A firm Manufactures & Markets a product that sells for birr 20 per unit. Fixed Costs Associated With activity total birr 40,000 a month. While Variable Cost Per unit is birr 10. A maximum of 10,000 units can be produced & Sold
To analyze the situation, we need to calculate the total revenue, total fixed costs, total variable costs, and determine the breakeven point.
1. Total Revenue:
To calculate the total revenue, we multiply the selling price per unit by the maximum number of units that can be sold.
Total revenue = Selling price per unit * Maximum units sold
Total revenue = 20 Birr/unit * 10,000 units
Total revenue = 200,000 Birr
2. Total Fixed Costs:
Total fixed costs are given as 40,000 Birr per month. This amount remains the same regardless of the production level or number of units sold.
Total fixed costs = 40,000 Birr
3. Total Variable Costs:
To calculate total variable costs, we multiply the variable cost per unit by the maximum number of units that can be produced and sold.
Total variable costs = Variable cost per unit * Maximum units sold
Total variable costs = 10 Birr/unit * 10,000 units
Total variable costs = 100,000 Birr
4. Breakeven Point:
The breakeven point is the point where total revenue equals total costs (fixed costs plus variable costs).
Breakeven point = Total fixed costs / (Selling price per unit - Variable cost per unit)
Breakeven point = 40,000 Birr / (20 Birr/unit - 10 Birr/unit)
Breakeven point = 40,000 Birr / 10 Birr/unit
Breakeven point = 4,000 units
In summary:
- The total revenue at the maximum production and sales level is 200,000 Birr.
- The total fixed costs are 40,000 Birr.
- The total variable costs are 100,000 Birr.
- The breakeven point, where total costs equal total revenue, is 4,000 units.
I don't mind helping to find answers, but I resent having to provide the questions as well.
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To calculate the break-even point, we need to find the number of units that need to be sold to cover the fixed costs.
Step 1: Calculate the total fixed costs.
Fixed costs = birr 40,000
Step 2: Calculate the contribution margin per unit.
Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = birr 20 - birr 10 = birr 10
Step 3: Calculate the break-even point in units.
Break-even point (in units) = Fixed costs / Contribution margin per unit
Break-even point (in units) = birr 40,000 / birr 10 = 4,000 units
Therefore, the firm needs to sell at least 4,000 units to cover all the fixed costs.