Question

Toy Plc. makes special toy cars which it sells to retailers for K25, 000 per toy car. Retailers sell the toy cars to consumers for K40, 000 each.

Budgeted information for the following year:
Production and sales 200, 000 toy cars
Fixed overheadK2, 400, 000, 000
Variable costs per toy carK6, 500
Recently, the retailer has started using their buyer power over Toy Plc. demanding a discount off the existing price charged to them. Directors of Toy plc. fear that they may lose business if they do not offer some discount to their customers and have asked for advice from a market research consultancy firm.
The consultants have suggested that Toy plc. need to reduce the selling price charged to retailers by a minimum of 10% if they are to retain existing customers. The consultants, however, believe that Toy plc. can use some buyer power of their own over the suppliers of materials such that the variable cost per toy car would fall by 5%
Based upon the existing selling price and variable cost per toy car:
Calculate the breakeven point in units and value

Answer 1

The breakeven point in units is 71,641 units and the breakeven point in value is K2,865,640,000.

Step-by-step explanation:

To calculate the breakeven point in units and value, we need to consider the fixed overhead costs and the variable costs per toy car. The fixed overhead cost for Toy Plc. is K2,400,000,000. The variable cost per toy car is K6,500.

1. To find the breakeven point in units, we divide the fixed overhead cost by the contribution margin per unit. The contribution margin per unit is the selling price per toy car minus the variable cost per toy car. In this case, the contribution margin per unit is K40,000 - K6,500 = K33,500. So, the breakeven point in units is K2,400,000,000 / K33,500 = 71,641 units.
2. To find the breakeven point in value, we multiply the breakeven point in units by the selling price per toy car. In this case, the breakeven point in value is 71,641 units * K40,000 = K2,865,640,000.