Draw two break-even charts

Foster Beniform makes mannequins for shop window displays. The company’s directors are meeting to discuss sales budgets for 2008. The business has struggled to make a profit in recent years, but the finance director has made strenuous efforts in the last year or so to reduce the level of fixed costs and the directors hope to be able to make a profit in 2008. The production facilities can produce a maximum of 2000 mannequins per year. The selling price of a mannequin is €55, with variable costs of production of €25 per unit. In order to be able to make plans for 2008 the directors would like to know the break-even point in units if (a) fixed costs in 2008 are €40 000; (b) fixed costs in 2008 are €50 000. You are required to:

i) draw two break-even charts, one for each estimate of fixed costs, recording: ● fixed costs ● total costs ● total revenue.

ii) From the charts estimate the break-even point in units and in sales value for Foster Beniform for 2008 at each projected level of fixed costs.

iii) Use the break-even formula to calculate the break-even point in units and sales value at each estimated level of fixed costs for Foster Beniform for 2008.

Solution:

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