Ask Question
29 August, 16:58

Applet desires a 20% profit on sales of its smart phone. How will you handle this information in breakeven analysis? Assume that unit selling price, unit variable costs and fixed costs are all known.

+5
Answers (1)
  1. 29 August, 17:25
    0
    Decrease the fixed cost

    or

    Increase the contribution margin by either increasing the selling price or decreasing the variable cost.

    Explanation:

    Assuming The values

    Selling Price = $10

    Variable cost = $5

    Fixed Cost = $100

    Contribution = $10 - $5 = $5

    Current Break-even = 100 / $5 = 20 units or $200 (20x$10)

    Break even analysis formula = Fixed Cost / (Sales Price per unit - Variable cost per unit)

    Desire of 20% profit can be incorporation in Break-even analysis as follows

    Desired Profit = $200 x 20% = $40

    Reduce the fixed cost by $40

    Revised Fixed cost = $100 - $40 = $60

    Sales = (Desired Profit + fixed cost) / Contribution

    20 units = ($40 + $60) / $5

    20 units = $100 / $5

    20 units = 20 units

    Reduce the fixed cost by $40

    Increase contribution by $7

    There are two options to increase Contribution

    Increase in sale price = $12 - $5 = $7

    Decrease in Variable cost = $10 - $3 = $7

    =$100 - $40 = $60

    Sales = (Desired Profit + fixed cost) / Contribution

    20 units = ($40 + $100) / $7

    20 units = $140 / $7

    20 units = 20 units
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Applet desires a 20% profit on sales of its smart phone. How will you handle this information in breakeven analysis? Assume that unit ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers