PM - Break Even Point

In which of the following ways might financial returns be improved over the life cycle of a product?

(1) Maximizing the breakeven time

(2) Minimizing the time to market

(3) Minimizing the length of the life cycle

• 1 and 2

• 1 and 3

• 2 only

• 2 and 3

H Co uses a marginal cost plus pricing system to determine the selling price for one of its products, Product X.

Fixed overheads are $20,000 for the year. Budgeted output and sales for the year are 500 units and this should be sufficient for Product X to break even.

What profit mark-up would H Co need to add to the marginal cost to allow H Co to break even?

• 50 %

• 100 %

• 200 %

• 150 %

A company has fixed costs of $1.3 million. Variable costs are 55% of sales up to a sales level of $1.5 million, but at higher volumes of production and sales, the variable cost for incremental production units falls to 52% of sales. What is the breakeven point in sales revenue, to the nearest $1,000?

• $1,977,000

• $2,027,000

• $2,708,000

• $2,802,000

A company makes and sells a single product. When sales per month are $6.8 million, total costs are $6.56 million. When sales per month are $5.2 million, total costs are $5.44 million. There is a step cost increase of $400,000 in fixed costs when sales are $6.0 million, but variable unit costs are constant at all levels of output and sales.

What is the breakeven point for sales revenue per month?  

• $6.0 million

• There are two breakeven points: $5.64 million and $6.36 million

• $5.64 million only

• $6.36 million only

What is the breakeven point in sales, to the nearest $1,000?

• $ $910,000

• $14,000

• $900,000

• $914,000

Mabel Co manufactures and sells tables and chairs in a standard mix of one table to four chairs. The following information is available:

Product Table Chair

Variable cost per unit ($) 120 16

Contribution to sales ratio 0.4 0.6

Annual fixed costs are $100,000.

What is the breakeven point in sales revenue (to the nearest hundred dollars)

• $204,500

• $204,000

• $202,500

• $202,500

A company makes a single product which it sells for $2 per unit.

Fixed costs are $13,000 per month.

The contribution/sales ratio is 40%.

Sales revenue is $62,500.

What is the margin of safety (in units)?

• 12,000 units

• 13,000 units

• 14,000 units

• 15,000 units

Hare Events is also considering including a 10 km race during the running festival. It expects the race will have an entry fee of $20 per competitor and variable costs of $8 per competitor. Fixed costs associated with this race will be $48,000.

If the selling price per competitor, the variable cost per competitor and the total fixed costs for this 10 km race all increase by 10%, which of the following statements will be true?

• Break-even volume will increase by 10% and break-even revenue will increase by 10%

• Break-even volume will remain unchanged but break-even revenue will increase by 10%

• Break-even volume will decrease by 10% but break-even revenue will remain unchanged 

• Break-even volume and break-even revenue will both remain the same

A business manufactures a single product which it sells for $50. The variable costs of production are $10 a unit. Next month fixed costs will be $800,000. The Finance Director wants to realize a profit of $120,000. How many units must be sold to generate this profit?

• 2300

• 20000

• 23000

• 2000

Which of the following is the correct formula to calculate the break-even sales volume (in units) for a business?

• Fixed costs/ contribution per unit

• Fixed costs/c/s ratio

• Variable costs/contribution per unit

• Variable costs /c/s ratio