Peebles and Witcherley Limited manufactures a standard model of steam iron.The selling price of each iron is £35.Variable costs of manufacture are £9.80.During its 20X7 financial year the company expects to incur fixed production costs of £78 000 and fixed selling and administration overheads of £38 000. What is the expected break-even point in sales value in 20X7 (working to nearest whole unit and £)?

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Quizplus · Accepted Answer

The break-even point in units is calculated by dividing total fixed costs by the contribution margin per unit. Contribution margin per unit is selling price minus variable cost (£35 - £9.80 = £25.20). Total fixed costs are £78,000 + £38,000 = £116,000. Break-even point in units = £116,000 / £25.20 = 4,603 units. Break-even point in sales value = 4,603 units * £35 = £161,105.

Peebles and Witcherley Limited Manufactures a Standard Model of Steam