Question

Partner Industries sells a single product for $50 that has a variable cost of $30. Fixed costs amount to $15 per unit when anticipated sales targets are met. If the company sells one unit in excess of its break-even volume, profit will be:

Answer 1

Gross profit= $20

Step-by-step explanation:

Breakeven point is defined as the point in production where the revenue earned is equal to the cost incurred. This is important to businesses as it indicates the point above which production will become profitable.

To calculate the profit earned when the company produce one unit above the breakeven point, we need to calculate breakeven.

Breakeven in units= Fixed cost/(revenue-variable cost)

Breakeven in units= 15/(50-30)= 0.75 units

For a unit above breakeven it will be 1+0.75= 1.75 units

The profit at this production level is

Gross profit= (Revenue*units) - (variable cost*units)- fixed cost

Gross profit= (50*1.75)- (30*1.75)-15

Gross profit= 87.5- 52.5- 15

Gross profit= $20

Answer 2

$20.

Step-by-step explanation:

As the question require us to calculate the profit when one unit in excess of break-even point is sold, so we have to calculate the break-even quantity first. The formula to calculate the break-even quantity is:

Break-even Units = Fixed Cost / (Contribution Margin Per Unit)

where

Contribution margin per unit = Selling price per unit - variable cost per unit

⇒ Break-even units = 15 / (50 - 30) = .75.

This makes the one unit in excess of break-even volume to be 1.75. Now, we have to draft the income statement to determine the operating profit when sales volume is 1.75.

Income Statement

Revenue (50 * 1.75) $87.5

Variable Cost (30 * 1.75) (52.5)

Fixed Cost (15)

Operating Profit $20