Total Fixed Costs (FC):$108,524 Price (P):$37.87 Variable Costs (VC):$15.87 BE = FC P-VC Determine the Breakeven point (BE) in units.Round up your resulting number in units (your breakeven point ALWAYS rounds up).Use this rounded number in your calculation Calculate the Total Revenue (TR) at breakeven. Calculate the Total Costs (TC) breakeven.

QUESTION

Total Fixed Costs (FC):$108,524

Price (P):$37.87

Variable Costs (VC):$15.87

BE = FC

P-VC

• Determine the Breakeven point (BE) in units.Round up your resulting number in units (your breakeven point ALWAYS rounds up).Use this rounded number in your calculation
• Calculate the Total Revenue (TR) at breakeven.
• Calculate the Total Costs (TC) breakeven.
• Create a chart and label the breakeven point, total revenue, total costs, profit area, loss area, fixed costs, and variable costs.Make your chart similar to the one on page 639, Exhibit PC-10.
• What is the profit and profit margin if output is 7892 units?
• What is breakeven if cost rises by 11%?
• What is breakeven if the selling price rises by 8%?

ANSWER

Analysis of Breakeven Point and Profit Margin in a Business Scenario

Introduction

In this analysis, we will examine a business scenario to determine the breakeven point, total revenue, total costs, and profit margin. We will also explore the impact of changes in costs and selling price on the breakeven point. The given data includes total fixed costs (FC), price (P), and variable costs (VC). By utilizing these figures, we will conduct calculations and create a chart to visualize the breakeven analysis. Additionally, we will calculate the profit and profit margin at a specific output level.

Breakeven Point Calculation

To determine the breakeven point, we can use the formula BE = FC / (P – VC). Given the FC of $108,524, the price (P) of $37.87, and the variable costs (VC) of $15.87, we can substitute these values into the formula:
BE = $108,524 / ($37.87 – $15.87) = $108,524 / $22 = 4,933.82

Rounding up the breakeven point to the nearest whole number, we get 4,934 units.

Total Revenue and Total Costs at Breakeven

To calculate the total revenue (TR) at breakeven, we multiply the breakeven point by the price:
TR = 4,934 * $37.87 = $186,635.58

The total costs (TC) at breakeven can be obtained by adding the fixed costs and variable costs:
TC = FC + (VC * BE) = $108,524 + ($15.87 * 4,934) = $108,524 + $78,343.58 = $186,867.58

Chart Representation

To visually represent the breakeven analysis, we can create a chart similar to Exhibit PC-10 on page 639. The chart will include the following elements: breakeven point, total revenue, total costs, profit area, loss area, fixed costs, and variable costs. Each element will be appropriately labeled to provide a clear understanding of the data and its relationships.

Profit and Profit Margin at 7,892 Units

To calculate the profit, we need to subtract the total costs from the total revenue at the output level of 7,892 units:
Profit = TR – TC = ($37.87 * 7,892) – ($108,524 + ($15.87 * 7,892))

To calculate the profit margin, we divide the profit by the total revenue and multiply by 100 to express it as a percentage:
Profit Margin = (Profit / TR) * 100

Breakeven Point with 11% Cost Increase

To calculate the new breakeven point after a cost increase of 11%, we multiply the original breakeven point by 1 plus the percentage increase:
New BE = BE * (1 + 0.11)

Breakeven Point with 8% Selling Price Increase

To calculate the new breakeven point after a selling price increase of 8%, we divide the original breakeven point by 1 plus the percentage increase:
New BE = BE / (1 + 0.08)

Conclusion

In this analysis, we examined a business scenario and performed a breakeven analysis to determine the breakeven point, total revenue, total costs, and profit margin. We also created a chart to visualize the data. Additionally, we calculated the profit and profit margin at an output level of 7,892 units. Furthermore, we explored the impact of an 11% cost increase and an 8% selling price increase on the breakeven point. By conducting this analysis, businesses can gain valuable insights into their financial performance and make informed decisions to optimize their operations and profitability.