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    AE4 Activity 7 Break Even Analysis Solution

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    Maricar Pineda
    The document contains examples of calculating total revenue, total cost, profit, break-even point, and profit maximization for different firms. In one example, a firm sells products for P30 per unit, has variable costs of P20 per unit and fixed costs of P15,000. Its break-even point is 1,500 units with revenue of P45,000. Profit is maximized by producing 3,100 units. Another example is of a small industry with unit selling price P2.80, unit variable cost P1.80, and fixed cost P20,000. Its break-even point is 20,000 units with revenue of P56,000. A third

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    AE4 Activity 7 Break Even Analysis Solution

    Uploaded by

    Maricar Pineda
    2K views5 pages
    The document contains examples of calculating total revenue, total cost, profit, break-even point, and profit maximization for different firms. In one example, a firm sells products for P30 per unit, has variable costs of P20 per unit and fixed costs of P15,000. Its break-even point is 1,500 units with revenue of P45,000. Profit is maximized by producing 3,100 units. Another example is of a small industry with unit selling price P2.80, unit variable cost P1.80, and fixed cost P20,000. Its break-even point is 20,000 units with revenue of P56,000. A third

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    The document contains examples of calculating total revenue, total cost, profit, break-even point, and profit maximization for different firms. In one example, a firm sells products for P30 per unit, has variable costs of P20 per unit and fixed costs of P15,000. Its break-even point is 1,500 units with revenue of P45,000. Profit is maximized by producing 3,100 units. Another example is of a small industry with unit selling price P2.80, unit variable cost P1.80, and fixed cost P20,000. Its break-even point is 20,000 units with revenue of P56,000. A third

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2K views5 pages

    AE4 Activity 7 Break Even Analysis Solution

    Uploaded by

    Maricar Pineda
    The document contains examples of calculating total revenue, total cost, profit, break-even point, and profit maximization for different firms. In one example, a firm sells products for P30 per unit, has variable costs of P20 per unit and fixed costs of P15,000. Its break-even point is 1,500 units with revenue of P45,000. Profit is maximized by producing 3,100 units. Another example is of a small industry with unit selling price P2.80, unit variable cost P1.80, and fixed cost P20,000. Its break-even point is 20,000 units with revenue of P56,000. A third

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    Activity 7A

    A firm buys merchandise at P20 per unit and sells them at P30 per unit. Fixed costs are at P15,000.
    Determine the following:
    a. TR, TC and Profit function.
    TR = 30q
    TC = 20q + 15,000
    P = TR – TC
    = 30q – (20q + 15,000)
    P = 10q – 15,000
    b. Sales volume when profit is P16,000.
    P = TR – TC
    16,000 = 30q – (20q – 15,000)
    10q = 31,000
    q = 3,100 units
    c. Profit when sales volume are 1,000 units.
    P = 10q – 15,000
    = 10(1,000 – 15,000)
    = - 5,000 (loss)
    d. The break-even quantity and revenue.
    At BEP, P = 0 .’. TR = TC
    30q = 20q -15,000
    10q = 15,000
    q = 1, 500 units (BEP in quantity)
    BEP R = 30 (1,500 units) = P45,000
    e. The new break-even point if the selling price is increased by 10% but the FC and UVC are
    constant.
    New selling price 30 + 30(10%) = 33
    33q = 20q + 15,000
    13q = 15,000
    q = 1,154 units
    f. The amount by which the variable cost per unit has to be increased or decreased in order to
    break even at 1,000 units, assuming FC and USP are constant.
    Let X = new unit variable cost
    1,000(30) = 1000X + 15,000
    1,000X = 15,000
    X = 15
    Thus, the decreased is P5 = (P20 – P15)
    g. If UVC and FC are constant, the new unit selling price (USP) to break even at 1,000 units.
    Let X = new unit selling price
    1,000X = 20(1,000) + 15,000
    X = P35
    Activity 7B

    A small scale industry sells its products at P2.80 per unit. The variable cost is P1.80 per unit. The total
    fixed cost is P20,000.
    Determine the following:
    a. The break-even quantity and revenue.
    At BEP, P =0 .’. TR =TC
    2.80q = 1.80q – 20,000
    2.80q – 1.80q = 20,000
    q = 20,000 units (BEP in quantity)
    BEP R = 2.80(20,000 units) = P56,000
    b. The profit (or loss) at a sales volume of P15,000 units
    P = 2.80(15,000) – 1.80(15,000) – 20,000
    P = - 5,000 (loss)
    c. Make a diagram of the total cost, total revenue, break-even point linear relationship.

    d. How can profit be generated if there is a loss in (b)


    Increase the unit selling price or decrease the unit variable cost or fixed cost.
    e. Up to how much should the selling price per unit be increased or decreased to break-even at
    15,000, assuming that FC and UVC remain constant.
    Let X = new unit selling price
    15,000X = 1.80(15,000) + 20,000
    X = 47,000/15,000
    X = 3.13
    Amount of increased in unit selling price is P0.53 = (P3.13 – P2.80)
    f. TC when sales are 10,000 units.
    TC = 1.80(10,000) + 20,000
    TC = P38,000

    Activity 7C

    A product sells at P12 per unit. Fixed cost id P40 and the variable cost per unit is P7. After
    observing that the sale of the product has begun to decline, its per unit selling price is
    decreased by 10% of units sold. Variable cost and fixed remain unchanged.
    Let q = number or units sold
    a. Represent the new selling price per unit.
    New selling price = (12 – 0.1q) per unit
    b. Write the TR, TC and profit functions.
    TR = (12 -0.1q)q
    TR = 12q -0.1q2
    TC = 7q + 40
    Since P = TR – TC
    P = (12q -0.1q2) – (7q +40)
    P = 12q – 0.1q2 -7q -40
    P = 5q – 0.1q2 – 40
    P = - 0.1q2 +5q -40
    c. Find the break-even point quantity and revenue.
    At break-even point, Profit = 0
    0 = 5q – 0.1q2 – 40
    - 0.1q2 +5q -40 = 0
    q2 -50q +400 = 0 multiplying the equation by -10
    (q -10) (q – 40) factoring the quadratic trinomial
    Equating both factors to zero, and solving for q:
    q – 10 = 0 q – 40 = 0
    q = 10 break-even in quantity q = 40 break-even in quantity
    Solving for the break-even i= revenues:
    If q = 10 If q = 40
    2
    TR = 12q – 0.1q TR = 12q – 0.1q2
    = 12(10) – 0.1 (10)2 = 12(40) – 0.1 (40)2
    = 120 – 10 = 480 – 160
    = 110 BE Revenue = 320 BE Revenue
    d. Find the profit at a sale of 50 units
    P = -0.1q2 + 5q – 40
    If q = 50
    P = -0.1(50)2 + 5(50) – 40
    P = -0.1(2,500) + 250 -40
    P = -P40 (loss)
    Activity 7D
    A small scale manufacturer can sell q number of units of each product produced per week at a
    price of (18 – 0.02q) pesos. It costs P8 to make each unit of the product. The fixed cost
    associated with producing and selling the product weekly is P450. Determine:
    a. The TR, TC and profit Function.
    TR = (18 – 0.02q)q
    TR = 18q – 0.02q2
    TR = - 0.02q2 + 18q
    TC = 8q + 450
    P = -0.02q2 + 18q -8q – 450
    P = -0.02q2 + 10q – 450
    b. Production level to break-even.
    At BEP, P = 0; TR = TC
    - 0.02q2 + 18q = 8q + 450
    - 0.02q2 + 10q – 450 = 0
    q=−b −¿ √ ¿2
    + ¿ b −4 ac
    ¿
    2a

    q=−10 −¿ 2
    + ¿ √(10) −4(−0.02 )(−450) ¿
    ¿
    2(−0.02)

    −10 ±8
    q=
    −0.04

    −2
    q= =50unⅈts
    −0.04
    −18
    q= =450 unⅈts
    −0.04

    c. Production level to maximize profit


    P’ = -0.04q + 10
    0.04q = 10
    q = 250 units
    d. Maximum profit at this level.
    Pmax = -.02(250)2 + 10(250) -450
    = P800
    e. Interpret the meaning of the two break-even points.
    There are two break-even points : (50, 450). This means that selling less than 50 as well
    as selling more than 450 units would mean a loss for the company.

    Activity 7E

    Given: TC = f(q) = 0.3q2 – 105q + 120,000 (pesos).


    a. What volume should be produced for minimum cost?
    TC = 0.3q2 – 105q + 120,000
    TC’ = 0.6q – 105
    q = 175 units
    TC” = 0.6 > 0
    b. What is the minimum cost?

    TCmin = 0.3(175)2 - 105(175) + 120,000


    = P110,812.50

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