Angela sets up in business making teddy bears. Materials cost £3 per bear, employees are paid £2 for each bear produced and there are packaging costs of £1 for each bear. The fixed costs of Angela's teddy bear workshop amount to £25,000 per annum. Each bear sells for £10. Angela's aim is to sell 15,000 teddy bears in her first year of operations. What is Angela's break-even point in terms of the number of teddy bears sold?

Question

Quizplus · Accepted Answer

The break-even point is calculated by dividing the total fixed costs by the contribution margin per unit. The contribution margin per bear is £10 - (£3 + £2 + £1) = £4. The break-even point is £25,000 / £4 = 6,250 bears.

Angela Sets Up in Business Making Teddy Bears