Question

A firm producing shoes has fixed costs of £200,000 per year. They have variable costs

per pair of shoes of £5. The shoes are sold at £45 per pair
a) Calculate the profit or loss made if they sell 1,000 pairs of shoes. Show your
workings (4 marks)

Answer 1

• Break-even point=5000 units
• Loss = $45,000

Step-by-step explanation:

Profits are the sales made after the break-even point.

The break-even point = Fixed costs/ contribution margin per unit

Fixed costs= £200,000

Contributions margin per unit = Selling price - variable cost

= £45 - £5

=£40

Break even point = £200,000/£40

Break-even point=5000 units

At break-even, profit or loss is equal to zero

At 1000 units, the loss will be units x selling price

=1000 x $45

=$45,000