EXERCISE 6: BREAKEVEN ANALYSIS Breakeven Analysis allows you to assess how profitable a project will be based on how much you sell each unit for and how many units you sell. In the following example, assume you own a small company that has developed a new exercise device-called "The Strider"-that tells someone how far they have walked, how many calories they have burned and how many paces per mile they have tallied. Assume the following facts. The machine that makes the device was purchased for $11,500. The microprocessors, the plastic case materials and the labor needed to assemble it costs $15 for each device. You have decided to sell the product directly to the consumer through a website promoted through ads. The price you intend to charge each buyer for the "Strider" is $42. Before you market the product, you decide to create a spreadsheet to estimate the revenues, costs, profits and "Breakeven Point." Go to the "Excel_Homework" and click on the tab/worksheet labeled "Breakeven Analysis." Create a breakeven analysis table for "The Strider". Note that the Breakeven Point is in units and should therefore be rounded. You should set up the spreadsheet with the appropriate formulas to change the price, cost and sales volume quickly. Answer the following questions: 1. What are your revenues, total expenses and profit if you sell 10,000 Striders? 2. How many Striders do you need to sell at $42 to break even? 3. What are your revenues, expenses and profit if you sell 15,000 Striders by lowering the price to $35 each? 4. How many Striders do you need to sell at $42 to make $500,000 in profits? (Find the answer by using the formula to calculate the profit, i.e., Profit = Revenue - Total Cost.) I Type All Answers on your Excel Spreadsheet that you will submit. 13 S 14 Per Unit No of units Tota 3 Selling Prince $ 42 $ 10,000 $ 420,000 4 Less: Variable Cost $ 15 5 10,000 150,000 5 Contribution $ 27 $ 10,000 $ 270,000 6 7 Profit $ 270,000 $ 11,500 5 258,500 8 9 Break Even Point 11.500 5 27 5 425.9) 10 11 No of units to be sold $ 12 13 Per Unit No of units Total 15 Selling Prince $ 35 15,000 $ 525,000 16 Less: Variable Cost $ 155 15,000 S 225,000 17 Contribution $ 20$ 15,000 $ 300,000 18 19 Profit S 300,000 $ 11,500 $ 288,500 20 21 Desired Contribution $ 511,500 $ 20 S 25,575.00 22 23 24 1. What are your revenues, total expenses and profit if you sell 10.000 Striders? S270,000 26 2. How many Striders do you need to sell at $42 to break even? S 28 3. What are your revenues, expenses and profit if you sell 15.000 Striders by lowering the price to $35 each? s 300,000 30 4. How many Striders do you need to sell at 542 to make $500,000 in profits? Find the answer by using the formula to calculate the profit, i.e. Profit - Revenue - Total Cost.) 31 $ 25,575 32 QUESTION 7 If you sell 10,000 stridersat $42 each: Revenue: $ Total Expenses: $ Profit: $ QUESTION 8 How many Striders do you need to sell at $42 to break-even? QUESTION 9 If you sell 15,000 striders at $35 each: Revenue: $ Total Expenses: $ Profit: $ QUESTION 10 How many Striders do you need to sell at $42 each to make a profit of atleast $500,000
