the superior recording company sells album for birr 5 each. manufacturing cost is birr 1.30 per album ,marketing cost is birr 1.20 per album and loyalty payment are 20% of selling price. the fixed cost of preparing the album is 9000. capacity is album is 15,000
A. draw break even chart
B. compute the break even point i, in unit s ii, in birr iii. as percent of capacity
C. determine the net income at a sales volume of 55% of capacity
D. determine the sales volume in birr to generate a net income of birr
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Your answr exercise
A. To draw a break-even chart, we need to plot the sales revenue and total costs at different levels of output.
Let's start by calculating the total cost per unit. The manufacturing cost is birr 1.30, marketing cost is birr 1.20, and loyalty payments are 20% of the selling price, which is 20% of birr 5.
Total cost per unit = manufacturing cost + marketing cost + loyalty payment
= birr 1.30 + birr 1.20 + (0.20 * birr 5)
= birr 1.30 + birr 1.20 + birr 1
= birr 3.50
Next, let's calculate the fixed cost per unit. The fixed cost is birr 9000, and the capacity is 15,000 units.
Fixed cost per unit = fixed cost / capacity
= birr 9000 / 15000
= birr 0.60
Now, we can calculate the total cost per unit, including the fixed cost.
Total cost per unit = fixed cost per unit + variable cost per unit
= birr 0.60 + birr 3.50
= birr 4.10
B.
i. The break-even point in units can be calculated by dividing the fixed costs by the contribution margin per unit, which is the selling price per unit minus the total cost per unit.
Break-even point in units = fixed costs / contribution margin per unit
= birr 9000 / (birr 5 - birr 4.10)
= birr 9000 / birr 0.90
= 10,000 units
ii. The break-even point in birr can be calculated by multiplying the break-even point in units by the selling price per unit.
Break-even point in birr = break-even point in units * selling price per unit
= 10,000 units * birr 5
= birr 50,000
iii. The break-even point as a percent of capacity can be calculated by dividing the break-even point in units by the capacity and multiplying by 100.
Break-even point as percent of capacity = (break-even point in units / capacity) * 100
= (10,000 units / 15,000 units) * 100
= 66.67%
C. To determine the net income at a sales volume of 55% of capacity, we need to calculate the total revenue and subtract the total cost.
Sales volume at 55% of capacity = 55% * 15,000 units
= 8,250 units
Total revenue at 55% of capacity = sales volume * selling price per unit
= 8,250 units * birr 5
= birr 41,250
Total cost at 55% of capacity = total cost per unit * sales volume
= birr 4.10 * 8,250 units
= birr 33,825
Net income at 55% of capacity = total revenue - total cost
= birr 41,250 - birr 33,825
= birr 7,425
D. To determine the sales volume in birr to generate a net income of birr, we need to set up an equation and solve for the sales volume.
Net income = (selling price per unit - total cost per unit) * sales volume
Rearranging the equation, we get:
Sales volume = net income / (selling price per unit - total cost per unit)
Let's substitute the values:
Sales volume = birr 7,425 / (birr 5 - birr 4.10)
= birr 7,425 / birr 0.90
= 8,250 units
Sales volume in birr = sales volume * selling price per unit
= 8,250 units * birr 5
= birr 41,250