In its first year, “ABOL BUNA” Company had the following experience.
Sales = 25,000 units Selling price = Birr 100
Total variable cost = Birr 1,500,000 TFC = Birr 350,000
Required:
b)Find the break-even point in terms of quantity
In its first year, “ABOL BUNA” Company had the following experience.
Sales = 25,000 units Selling price = Birr 100
Total variable cost = Birr 1,500,000 TFC = Birr 350,000
Required:
b)Find the break-even point in terms of quantity
To find the break-even point in terms of quantity, we need to use the formula:
Break-even point (in units) = Total Fixed Costs / Contribution Margin per Unit
To calculate the contribution margin per unit, we need to subtract the variable cost per unit from the selling price per unit.
Variable cost per unit = Total Variable Costs / Number of Units
Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit
Now, let's find the break-even point in terms of quantity.
Step 1: Calculate the variable cost per unit.
Variable cost per unit = Total Variable Costs / Number of Units
Variable cost per unit = Birr 1,500,000 / 25,000 units
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 100 - (Birr 1,500,000 / 25,000 units)
Step 3: Calculate the break-even point in terms of quantity.
Break-even point (in units) = Total Fixed Costs / Contribution Margin per Unit
Break-even point (in units) = Birr 350,000 / (Birr 100 - (Birr 1,500,000 / 25,000 units))
By substituting the values, you can calculate the break-even point in terms of quantity.