Final answer:
The break-even sales represents the point at which a company's total revenue equals its total cost, resulting in neither profit nor loss. To calculate break-even sales, you need to know the firm's fixed costs, variable costs, and selling price per unit. Under present and proposed conditions, you need to take into account any changes in fixed costs, variable costs, and selling price per unit to calculate the break-even sales for each scenario.
Step-by-step explanation:
The break-even sales represents the point at which a company's total revenue equals its total cost, resulting in neither profit nor loss. It is the level of sales at which a company covers all of its expenses. To calculate break-even sales, you need to know the firm's fixed costs, variable costs, and selling price per unit.
- Identify the fixed costs: These are costs that do not change with the level of production or sales, such as rent, salaries, and insurance.
- Determine the variable costs per unit: These are costs that vary with the level of production or sales, such as raw materials or direct labor.
- Calculate the contribution margin per unit: This is the selling price per unit minus the variable cost per unit.
- Divide the fixed costs by the contribution margin per unit: This will give you the number of units you need to sell to break even.
Under present and proposed conditions, you need to take into account any changes in fixed costs, variable costs, and selling price per unit to calculate the break-even sales for each scenario.