Sonoma winery has fixed cost of $10,000 per year. its warehouse sells wine with variable costs of 80% of its unit selling price. How much in sales does Sonoma need to break even per year?
50000
To determine the break-even sales for Sonoma winery, we need to consider both the fixed costs and the variable costs.
Step 1: Calculate the fixed costs per unit.
Fixed costs are the costs that do not change regardless of the level of production. In this case, Sonoma winery has a fixed cost of $10,000 per year. To calculate the fixed cost per unit, we need to divide the total fixed cost by the number of units produced/sold.
Step 2: Calculate the variable costs per unit.
Variable costs are the costs that change proportionally with the level of production. In this case, Sonoma's warehouse sells wine with variable costs equal to 80% of its unit selling price. Therefore, the variable cost per unit is 80% of the unit selling price.
Step 3: Determine the contribution margin.
The contribution margin is the amount left from the selling price after all variable costs per unit are deducted. It represents the amount that contributes towards covering the fixed costs and generating profit. To calculate the contribution margin, subtract the variable cost per unit from the selling price per unit.
Step 4: Calculate the breakeven sales.
The break-even point is the point at which the total revenue equals total costs, resulting in no profit or loss. To calculate the break-even sales, divide the fixed costs by the contribution margin.
So let's go through the steps to find the answer:
Step 1: Fixed cost per unit = Total fixed cost / Number of units produced or sold per year.
Step 2: Variable cost per unit = 80% of the unit selling price.
Step 3: Contribution margin = Selling price per unit - Variable cost per unit.
Step 4: Break-even sales = Fixed costs / Contribution margin.
Note: We need the selling price per unit to fully calculate the break-even sales. If you have that information, please provide it so that we can proceed with the calculation.