Break Even Analysis.. consider the following income statemenbt and answer the question that follow.
Sales(100 units) $200
Variable cost (.80each) .80
Fixed cost 20
Ebit 100
interest expense 30
ebt 70
income tax 24
net income 43
What is the firm break even point.
I have puzzled my brain all night and day to figure this out and just can't, can you please help?
Of course! I'll be happy to help you understand how to calculate the break-even point in this scenario.
The break-even point is reached when a company's sales revenue covers all its costs, resulting in neither profit nor loss. To calculate the break-even point, you need to determine the level of sales required to equal the total costs.
In this case, let's break down the given information:
Sales: 100 units at $200 each. So, the total sales revenue is 100 * $200 = $20,000.
Variable cost: Each unit has a variable cost of $0.80. Since there are 100 units, the total variable cost is 100 * $0.80 = $80.
Fixed cost: The fixed cost is $20.
Earnings Before Interest and Taxes (EBIT): The EBIT is given as $100.
Interest expense: The interest expense is $30.
Earnings Before Taxes (EBT): The EBT is given as $70.
Income tax: The income tax is $24.
Net income: The net income is given as $43.
To calculate the break-even point, we need to set up the equation:
Break-even point = Fixed cost / (Selling price per unit - Variable cost per unit)
In this case, the selling price per unit is $200, and the variable cost per unit is $0.80. Plugging in these values, we get:
Break-even point = $20 / ($200 - $0.80)
Break-even point = $20 / $199.20
Break-even point ≈ 0.1005 (approximately)
Therefore, the break-even point for this firm is approximately 0.1005, meaning they need to sell approximately 0.1005 units (rounded to the nearest whole unit) to cover their costs and reach the break-even point.
Note: Since it is not possible to sell a fraction of a unit, we usually round up to the nearest whole unit. So, in this case, the firm will need to sell at least 1 unit to reach the break-even point.