BREAK – EVEN POINT CALCULATION IN PRODUCTION MANAGEMENT

For: Questions and answers email: theotherwomaninmarriage@gmail.com

This question below was hinted us by one old lecturer and maybe, you never can tell, it will come out.

Here is it:

QUESTION:

A company make N50, 000 profits from selling 10,000 units for N60,000 each.  Its fixed cost (FC) is N150,000.  What is the Break-Even Point?

SOLUTION:

BEP =               FC___

SP – AVC

Now variable cost is not given.  It is a technical error question: So we have to solve for Variable Cost (VC):

Profit = TR – TC

p.q – (Vc + Fc) = profit

The p is selling price while the q is the quantity. So;

p.q – (Vc + Fc) = profit

(60,000 x 10,000) – vc-150,000 = 50,000

Explanation: - the 60,000 is the selling price, while the 10,000 is the quantity per unit.  VC is the unknown we are looking and 150,000 is the fixed cost (fc) while 50,000 is the profit.

600,000,000  - vc – 150,000 = 50,000

Explanation: 600,000,000 is when you multiply 60,000 x 10,000. Vc is still the unknown the minus after the vc is because we multiply minus by plus, it will give you minus.  The 150,000 is still the fc. While the 50,000 is still the profit.

600,000,000 – vc=200,000

Explanation: This 600,000,000 is the same above, while vc is the same above, but 200,000 has crossed the equality sign to meet 50,000 and that makes it 200,000.

600,000,000 – 200,000=VC

Explanation: Here, the vc has crossed the equality sign to the other side and we can now minus 600,000,000 from 200,000 and that is how we got the answer below:

599,800,000 = VC:

 

Now Average Variable Cost (AVC) =  VC

                                                     Q

AVC =  599,800,000

               10,000

AVC = 59,980

B.E.P =     FC___

           SP – AVC

B.E.P =       150,000____

             60,000 – 59,980

B.E.P =       150,000____

                       20

B.E.P =       7,500 units

I believe you understand the rest.  But if you don’t, you can always contact the otherwomaninmarriage@gmail.com

Without all the explanation, this is how the workings should be:

SOLUTION:

BEP =               FC___

SP – AVC

Profit = TR – TC

p.q – (Vc + Fc) = profit

p.q – (Vc + Fc) = profit

(60,000 x 10,000) – vc-150,000 = 50,000

600,000,000  - vc – 150,000 = 50,000

600,000,000 – vc=200,000

600,000,000 – 200,000=VC

599,800,000 = VC:

Now Average Variable Cost (AVC) =  VC

                                                     Q

AVC =  599,800,000

               10,000

AVC = 59,980

B.E.P =     FC___

           SP – AVC

B.E.P =       150,000____

             60,000 – 59,980

B.E.P =       150,000____

                       20

B.E.P =       7,500 units

This question is simple but so technical.  That is why you should practice it always.