Often a firm will calculate the break-even point for a price. That is, if we set the price at $X, then how many units will we need to sell to cover costs (that is, our break-even point). Work through the following data and questions to gain a better understanding of this approach.
- Start by completing the above table under the assumption that the product will be sold for $30. (It will be easiest to use Excel to complete the table.) How many units need to be sold to break-even at a product price of $30?
- Now recalculate the table under the assumption that the product will be sold for $15. How many units need to be sold to break-even at a product price of $15?
- What do you think you would set first: the sales target or the price? Why?
|No. of Units||Allocated Fixed Costs||Variable Cost/Unit||Total Production Cost||Average Unit Cost||Unit Price||Total Sales Revenue||Gross Profit|