- This topic has 6 replies, 3 voices, and was last updated 7 years ago by
.
- Posts
A company is restructuring its employee force. Employees are currently paid a fixed salary of 240,000 per annum, but would be instead paid $200 per working day. on a typical wok day, staff can produce 40 units. Other fixed costs are $400,000 pa.
Selling price is $60 and material cost $20 per unit. What is the effect on break-even point?
The answer simply divided the ($400,000+$240,000)/40u and compared with $200,000/35u.
I dont understand the logic behind the use of 40u and 35u respectively as the denominators..
Please explain
If you have typed out the whole of the question, and if that is all that was in the answer, then there is no logic.
If it is a past exam question, or is a question from the BPP Revision Kit, then tell me which question. Then I can see the whole question and I will be able to help you.
Unfortunately, it’s a Kaplan Kit and that’s everything in the question. I noticed an error in the answer I typed out however. I have retyped it out again below correctly.
*beginning of answer*
Current Break-even point is $640,000/40 = 16,000 units
New Break-even point is $400,000/35 = 11,429 units
Change in level of break-even is 16,000-11,429= 4,571 unitsCurrent contribution is $60-$20 = $40
New contribution is $60-$20-$5 = $35Operating risk reduces with less fixed costs in a business.
*end of answer* I hope it makes sense now or there’s an error in the kit?
40 and 35 This is not u (units), this is contribution pu. So you divide fix cost into contribution up and learn how much units is BEP. To find 35 puyou review you contributing (you change staff cost from fix to variable) by subtracting additional 200/40=5 out
gnom71: Please do not answer in this forum – it is Ask the Tutor, and you are not the tutor 🙂
(But please do help people in the other F5 forum)mjibola: What gnom71 has written is correct. As I explain in my free lectures on this, to find breakeven you divide the fixed costs by the contribution per unit.
Ok, got the message, sorry.
But honestly dream one day to become tutor at least part time:)
I will continue in another forum, but questions there are not as technical and relevant to paper as in this forum, it more administrative one:(
- The topic ‘CVP Analysis’ is closed to new replies.