Question

Cottage Industries Ltd makes baskets. The fixed costs of operating the workshop for month total $4,500. Each basket requires materials which costs $18. Each basket takes two hours to make and the business pays the basket-makers $27 an hour. The basket-makers are all on contracts that specify that if they do not work, for any reason, they are not paid. The baskets are sold to a wholesaler for $90 each.

What is the break-even point for basket-making for the business?

Answer 1

To calculate the break-even point for basket-making, we need to consider the fixed costs, variable costs, and the selling price of the baskets. The break-even point for basket-making is 100 baskets.

Step-by-step explanation:

To calculate the break-even point for basket-making, we need to consider the fixed costs, variable costs, and the selling price of the baskets.

Fixed costs: $4,500

Variable costs per basket: $18 (materials) + $27 (2 hours of labor at $27 per hour) = $45

Selling price per basket: $90

Break-even point is reached when the total revenue equals the total cost. Let's assume the break-even point is 'x'.

Total revenue = Selling price per basket * Break-even point

Total cost = Fixed costs + Variable costs per basket * Break-even point

Setting the total revenue equal to the total cost and solving for 'x':

$90x = $4,500 + $45x

$90x - $45x = $4,500

$45x = $4,500

x = $4,500 / $45

x = 100

The break-even point for basket-making is 100 baskets.