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Cost management

A firm makes a single product with a marginal cost of $3.50 and a selling price of $5.50. Fixed costs are $30 000 per period.

You are required to calculate:

a. The C/S ratio

b. Sales at break-even point

c. Number of units to break even

d. Sales to achieve a profit of $10 000

Question 2

a) Smith Limited has made the following estimates for next month

Selling price $25 per unit

Variable cost $10 per unit

Fixed costs for the month $300 000

Forecast output 30 000 units

Maximum output 40 000 units

You are required to calculate the:

i) contribution margin ratio

ii) break-even point in units

iii) break even points in sales revenue

iv) margin of safety at the forecast output

v) number of units to generate a profit of $100 000

b) List and explain five (5) assumptions of break-even analysis

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