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15 March, 07:13

Francois french manufactures cheese, which he normally sells at €20/kg, on which sales commission of 5% is paid. plant capacity is 7,500 kg/month. income tax is levied at 30%. fixed costs costs per kg. plant depreciation €8,000 direct materials €4 other plant costs 15,000 direct labor 2 corporate salaries 10,000 var. factory o/h 3 advertising 3,000 the number of kilograms to sell to break-even is:

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  1. 15 March, 07:40
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    3,600 kilograms

    Explanation:

    Break even = Total fixed cost / Contribution margin per kg.

    Total fixed cost = Plant depreciation + Other plant costs + Corporate salaries + Advertising

    = €8,000 + €15,000 + €10,000 + €3,000

    = €36,000

    Sales commission = Selling price * 5%

    = €20 * 5%

    = €1 per kg

    Variable cost per kg = Direct materials + Direct labor + Variable factory overhead + Sales commission

    = €4 + €2 + €3 + €1

    = €10 per kg

    Contribution margin per kg = Selling price - Variable cost per kg

    = €20 - €10

    = €10 per kg

    Break even = Total fixed cost / Contribution margin per kg.

    = €36,000 / €10

    = 3,600 kilograms
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