Break-even help

Question

The market research for the production and sale of a new dress indicates that it can be sold for $175 per dress. The cost details are as follows: variable costs: $85 per dress, fixed costs: $7200 per period, and production capacity: 300 units per period.

a. Draw a detailed break-even chart showing the fixed costs
line, total costs line, total revenue line, break-even point,
and profit and loss areas.

b. Determine the break-even volume and break-even
revenue, and compute the break-even as a percent of the
production capacity

Answer 1

I can't do the graphs for you, but I can do some of this problem for you.

The total cost can be calculated as follows

C(x) = 85x+7200 with x<=300

 

The total revenue is

R(x) = 175x.

 

When you graph these 2 lines, where they meet is the break even point. In this case, it's when you produce 80 garments.

c(80) = 85(80) + 7200 = 14000

R(80 = 175(80) = 14000

 

So the cost and revenue is the same.

 

You make a profit for any items sold over 80 since the revenue line is above the cost line.

If your production line doesn't reach 80, the you are producing at a loss since the cost is above the revenue.

 

So the break even volume is 80, the break even revenue is $14000. 80 out of the 300 maximum is 26.67%. So if the production volume is at 26.67% of the maximum, your company will break even.

 

Hope this helped.