Break-even Analysis Form
BREAK-EVEN ANALYSIS - 11
a. How many suppressors must the company sell to break even?
b. What is the break-even revenue?
c. The company sold 3,000 units last year. What was its profit?
d. Due to a new lump-sum tax, next year's fixed costs are expected to rise to $37,500.
What will be the break-even quantity?
e. If the company will sell the number of units obtained in part (d) and wants to maintain
the same profit as last year, what will its new price have to be?
5. Writers' Pleasure, Inc. produces gold-plated pen and pencil sets. It has a fixed annual
cost of $50,000, and the average variable cost is $20. It expects to sell 5,000 sets next
year.
a. In order to just break even, how much will the company have to charge for each set?
b. Based on its plant investment, the company requires an annual profit of $30,000. How
much will it have to charge per set to obtain this profit? (Quantity sold will still be 5,000
sets.)
c. If the company wants to earn a markup of 50 percent on its variable costs, how many
sets will it have to sell at the price obtained in part b?
TFC AVC P Q at target profit
50,000 20 ___ 5,000,
A
= 0
50,000 20 ___ (say, P*) 5,000,
A
= 0
50,000 20 1.5×AVC P*
6. Easy-Barrows, Inc., produces wheelbarrows. Its costs have been analyzed as follows:
VARIABLE COST
Materials $30/unit
Manufacturing labor 3 hours/unit ($8/hour)
Assembly labor 1 hour/unit ($8/hour)
Packing materials $3/unit
Packing labor 20 minutes/unit ($6/hour)
Shipping cost $10/unit
FIXED COSTS
Overhead labor $50,000/year
Utilities $5,000/year
Plant operation $65,000/year
SELLING PRICE $100/unit
a. Calculate the break-even quantity.
b. Calculate the break-even revenue.
c. Develop a chart to show profits at quantities of 2,000, 4,000, 6,000, 8,000, and 10,000.
7. SoundNow Co. is considering discontinuance of its line of music tapes due to stiff
competition from CDs and other new, technologically advanced recordings. The
variable cost of its tapes last year was about 40 percent of its tape revenue, and the
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