The equation representing the total weekly costs (TC) in $ for an organization is as follows:
TC= 525,000+35Q
Where Q represents the weekly production and sales in units. The organization’s contribution to sales ratio is 30%.
What is the weekly breakeven point (in units)?
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MAbreakeven point
Total cost = Fixed cost + Variable cost per unit x Units
And Contribution = Sales - Variable costs or Sales (100%) = Contribution + Variable costs. Since contribution to sales is 30%, contribution is 30% of sales.
The Variable costs must then be 70% of sales.
$35 is Variable cost per unit. And Variable costs = 70% of sales.
Thus $35 = 70%
and Sales (100%) = 35/70 x 100 = $50 per unit. Thus contribution is $15 per unit.
BEP = Fixed costs / Contribution
Thus 525000 / 15 = 35,000 units.
This question and answer is in ACCA's examiner report June 2010.
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