Betis limited is considering changing the way it is structured by asking its employee staff to become freelance. Employees are currently paid a fixed salary of $240k per annum, but would instead be paid $200 per working day. On a typical working day, staff can produce 40units. Other fixed costs are $400k pa.
Selling price per unit $60 and material costs per unit are $20.
What will the effect of the change on breakeven point of the business and the level of operational risk?
Solutions :
Current break even point = $640k/40 = 16,000 units
New breakeven point = $400k/35 = 11,429 units
Current contribution = $60-$20= $40
New contribution = $60-$20-$5= $35
Pls sir , could you assist on how the extra $5 deducted was calculated to get the new contribution of $35?
Thanks in advance
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7y ago#1If the employees become freelance then the wages become a variable cost instead of a fixed cost.
They will be paid $200 per day and will produce 40 units per day, so the variable cost per unit is $200/40 = $5.
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