Break-even Analysis Questions In Tutorial Library

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TITLE: Break-even Analysis Questions

CLASS / COURSE: Management Accounting



Breakeven Analysis

1. The Federation of Student Societies (FESS) wants to offer a one-day training course to help students in job hunting and to raise funds.  The organizing committee is sure that they can find alumni, local business people, and faculty to provide the training at no charge.  Thus the main costs will be for space, meals, handouts, and advertising.

The organizers have classified the costs for room rental, room setup, and advertising as fixed costs.  They also have included the meals for the speakers as a fixed cost.  Their total of $225 is pegged to a room that will hold 40 people.  So if demand is higher, the fixed costs will also increase.

The variable costs for food and bound handouts will be $20 per student.  The organizing committee believes that $35 is about the right price to match value to students and their budgets.  Since FESS has not offered training courses before, they are unsure how many students will reserve seats.

Determine the number of registrations that would be needed for revenue to equal cost.


2. Fixed costs for Barker Corporation are estimated to be $90,000.  The unit selling price, unit variable cost, and unit contribution margin for Barker Corporation are as follows:

            Unit selling price                    $25

            - Unit variable cost                   15

            = Unit contribution margin    $10

Determine how many units must be sold in order to breakeven.


3.  Bishop Co. is evaluating a proposal to budget an additional $100,000 for advertising.  Fixed costs before the additional advertising are estimated at $600,000, and the unit contribution margin is $20.  The breakeven point before the additional expense is 30,000 units.  If the additional amount is spent, the fixed costs will increase by $100,000 and the breakeven point will increase.  Determine the new breakeven point.

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