= 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 following formula:
Break-even point (units) = Total Fixed Costs / (Selling price per unit - Variable cost per unit)
Plugging in the given values, we get:
Break-even point (units) = 350,000 / (100 - 60)
Break-even point (units) = 350,000 / 40
Break-even point (units) = 8,750
Therefore, the break-even point in terms of quantity is 8,750 units.
How to get 60 the above answer
The variable cost per unit is given in the question as Birr 60. Total variable cost is given as Birr 1,500,000, which we can divide by the total units sold to get the variable cost per unit:
Variable cost per unit = Total variable cost / Total units sold
Variable cost per unit = Birr 1,500,000 / 25,000
Variable cost per unit = Birr 60
This means that for each unit sold, the company incurs a variable cost of Birr 60. Therefore, the selling price of Birr 100 per unit minus the variable cost of Birr 60 per unit gives a contribution margin of Birr 40 per unit. We can use this contribution margin in the formula to calculate 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
First, let's calculate the contribution margin per unit:
Contribution Margin per unit = Selling Price per unit - Variable Cost per unit
The selling price per unit is Birr 100, and the total variable cost is Birr 1,500,000.
Variable Cost per unit = Total Variable Cost / Total units
Variable Cost per unit = Birr 1,500,000 / 25,000 = Birr 60
Contribution Margin per unit = Birr 100 - Birr 60 = Birr 40
Now, let's calculate the break-even point in terms of quantity:
Break-even point (in units) = Birr 350,000 / Birr 40
Break-even point (in units) = 8,750 units
Therefore, the break-even point in terms of quantity is 8,750 units.