question :

Assuming that the fixed costs can be divided between sales and repairs in the proportion of their revenues and that the material cost for repairs is negligible, what is the monthly breakeven point for computers (in )?

case study :When Ben is made redundant, he decides to run a business selling and repairing computers. In order to , he sets up a limited company, Dataloss Limited.

He plans to deposit 5,000 in the company's bank account on 1 January 2021 and issue 5,000 shares, with a nominal value of 1 each, in his own name. He also plans to borrow 3,000 from his father.

Ben will rent premises for his business at 2,000 a month and lease test and IT equipment for 500 a month. He will pay 3,000 for signage and furniture.For each of the first two months he will spend 7,000 on computers for resale and components for repairs. In the third month he hopes to buy 7,500 of computers on credit.

At the outset, he will hire a technician, at a cost of 1,900 a month, to do the repair work, whilst he mostly deals with selling and administration. He will pay himself 800 a month in salary and plans to take further income as dividends.

He estimates that he will use 250 worth of electricity per month, to be paid in April. He will pay1,400 for 12 months' insurance.

Other expenses paid for during the period will be:

per month

Rates350

Utilities (excluding electricity)300

Advertising300

Mileage200

Each month he hopes to sell computers for 8,750 and charge 2,400 for repairs. At the end of 3 months he expects to have unsold inventory, which would had cost him 10,000. He will depreciate non-current assets at a rate of 20% of original cost per year