Answer:
Break-even point (dollars)= $26,000
Explanation:
Giving the following information:
A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a profit of $10,000.
To calculate the dollar amount required, we need to use the break-even point in dollars formula and add the desired profit:
Break-even point (dollars)= (fixed costs + desired profit)/ contribution margin ratio
Break-even point (dollars)= (3,000 + 10,000) / [(5 - 2.5)/5]
Break-even point (dollars)= $26,000
The sales level required to achieve a profit of $10,000 is $26,000.
Sales refers to the amount of goods supplied to the customers by the business. The value of sales is calculated as follows:
[tex]\rm Sales = \dfrac{Profit+Fixed \:costs}{Contribution\:ratio}[/tex]
Contribution ratio refers to the ratio of contribution to the selling price. The contribution refers to the difference between selling price and variable cost of a product.
[tex]\rm Contribution = Selling\:price-Variable\:cost[/tex]
Given:
Selling price is $5.00
Variable cost is $2.50
Fixed cost is $3,000
Desired profit is $10,000
The contribution will be:
[tex]\rm Contribution = Selling\:price-Variable\:cost\\\rm Contribution = \$5.00 -\$2.50\\\rm Contribution = \$2.50[/tex]
Therefore the contribution ratio will be:
[tex]\rm Contribution\:ratio = \dfrac{Contribution}{Selling\:price}\\\\\rm Contribution\:ratio = \dfrac{2.50}{5.00}\\\\\rm Contribution\:ratio = 0.50[/tex]
Therefore the value of sales will be:
[tex]\rm Sales = \dfrac{Profit+Fixed \:costs}{Contribution\:ratio}\\\\\rm Sales = \dfrac{10,000+3,000}{0.50}\\\\\rm Sales = \dfrac{13,000}{0.50}\\\\\rm Sales = \$26,000[/tex]
Hence the sales to achieve desired profit is $26,000.
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