Question

ABC Ltd. makes a television table that sells for $50 per unit . It has a variable costs of $30 per unit and incurs fixed costs pf $100,000 per period. Construct the break- even chart ( label your graph ) for this operation and determine the sales value that the firm will have to reach if it is to male $20,000 profit per period.

Answer 1

To construct the break-even chart for ABC Ltd., we need to determine the break-even point, which is the point at which total fixed and variable costs are equal to total revenues. The formula for break-even analysis is:Break-Even Quantity = Fixed Costs / (Sales Price per Unit – Variable Cost Per Unit)Using the given information, we can calculate the break-even quantity as follows:Break-Even Quantity = $100,000 / ($50 - $30) = 4,000 unitsThis means that ABC Ltd. needs to sell 4,000 units to break even. To construct the break-even chart, we can plot the total revenue and total cost lines on a graph, with the quantity of units sold on the x-axis and the dollars on the y-axis. The point where the two lines intersect is the break-even point.To determine the sales value that the firm will have to reach to make $20,000 profit per period, we need to add the desired profit to the fixed costs and then use the same formula as before. The calculation is as follows:Break-Even Quantity = ($100,000 + $20,000) / ($50 - $30) = 4,800 unitsThis means that ABC Ltd. needs to sell 4,800 units to make a profit of $20,000 per period. To construct the break-even chart with the desired profit, we can plot the total revenue and total cost lines with the new fixed costs of $120,000 ($100,000 + $20,000) and the same variable costs of $30 per unit. The point where the two lines intersect at 4,800 units sold is the new break-even point.