BACKGROUND

The company ABC, L.C. manufactures some products with an average sales price of 25/unit, with fixed annual costs of 110,000. The average unit variable costs are 5.

2.0 Develop

2.1 At what volume of production will the threshold of profitability be reached?

Threshold of Profitability or Break-even point:

Calculating the break-even point is a key financial analysis tool used by business owners. It is the point at which the companys sales exactly cover the expenses

(Variable and fixed) associated with the product. It consists of comparing fixed costs with the unit gross margin. When the contribution margin equals fixed costs, there is no margin for gain left (it does not generate profitability), so the company is at the breakeven point (no gain, no losses).

Fixed cost + variable cost =revenue⁰¹

Calculations: p*x=cf+(cv*x)

25*x=110,000+(5*x)

25x-5x=110,000

X=110,000/20

X=5,500 units- Is this Correct?

b) Assuming that annual sales are estimated at 20,000 units, being the distribution evenly over a year, on what date will the break-even point be reached?

Calculation:

20,000/365=54.79 or 55 units per day

55*25 unit=1375 per day

110,005/1375=80 days Is this correct?

c) What would be the sales value or turnover corresponding to the threshold of profitability? I do not know how to do this