Question

Crystal Clear manufactures and sells greenhouses from its base in South Yorkshire. The monthly fixed costs for its factory are £25,500. Its smallest greenhouse is sold for £400 with a variable cost of £60 each. Its material costs are kept low, as the business uses plastic rather than glass panes in the manufacturing process. Calculate the number of the smallest greenhouses that would need to be sold per month for the business to break even?

A) 100

B) 150

C) 200

D) 250

Answer 1

To break even, Crystal Clear needs to sell 75 units of their smallest greenhouse per month, calculated by dividing the fixed costs of £25,500 by the contribution margin of £340 (£400 selling price - £60 variable cost).

Step-by-step explanation:

Break-Even Analysis

To calculate the number of smallest greenhouses needed to be sold for Crystal Clear to break even, we need to apply the break-even formula which is the fixed costs divided by the selling price minus the variable cost per unit.

In this case, the fixed costs are £25,500, the selling price of each greenhouse is £400, and the variable cost is £60. The formula would therefore be: Break-Even Quantity = £25,500 / (£400 - £60).

After performing the calculation, the result is:

• Break-Even Quantity = £25,500 / £340
• Break-Even Quantity = 75 greenhouses

Therefore, Crystal Clear needs to sell 75 of the smallest greenhouses to break even every month.