STUDENT ASSESSMENT TASK

BSBFIN601 - MATHS

Student ID: S221308

Student Name: Ruby Christina Sahid

Assessor Name: Mr. Asif Imran Amit

Question 1

A company makes a product with a selling price of $20 per unit and variable costs of $12 per unit. The
fixed costs for the period are $40,000. What is the required output level to make a target profit of
$10,000?

Answer:

To calculate the required output level to achieve a target profit, I use use the Break-even plus target
profit formula:

Given:

 Selling Price per Unit = $20

 Variable Cost per Unit = $12

 Fixed Costs = $40,000

 Target Profit = $10,000

Contribution Margin per Unit:

20 − 12 = 8

Required Output:

✅ Answer:

6,250 units are needed to achieve a target profit of $10,000.

Question 2

A company has fixed costs of $300,000 and produces one product with a selling price of $72.00 and a
variable cost of $42.00 per unit. The maximum factory capacity is 20,000 units and it anticipates
selling 15,000 units. Construct a break-even chart showing the break-even point and the margin of
safety at present. Fully label your diagram.

How much profit will they make:

1. at the present level of operation?

2. if sales increase to the maximum that the factory can supply?

Answer:

Given Information:

 Fixed Costs (FC) = $300,000

 Selling Price per Unit (SP) = $72

 Variable Cost per Unit (VC) = $42

 Maximum Capacity = 20,000 units

 Anticipated Sales = 15,000 units

Contribution Margin (CM):

CM=SP−VC=72−42=$30 per unit

Break-even Point (units):

Margin of Safety (units and dollars):

MOS (units) = Expected Sales − Break-even Sales =15,000 − 10,000 = 5,000 units

MOS ($) = 5,000 × 72 = $360,000

Profit Calculations:

(1) At 15,000 units (present level):

Profit = (Units Sold×CM) – FC = (15,000 × 30) − 300,000 = 450,000 − 300,000 = $150,000

(2) At 20,000 units (maximum capacity):

Profit = (20,000 × 30) − 300,000 = 600,000 − 300,000 = $300,000

✅ Summary:

 Break-even Point = 10,000 units

 Margin of Safety = 5,000 units or $360,000

 Profit at 15,000 units = $150,000

 Profit at 20,000 units = $300,000

Question 3

The following information relates to a company, which produces a single product.

Direct labour per unit $ 22

Direct materials per unit $ 12

Variable overheads per $ 6

unit

Fixed costs $ 400,000

Selling price per unit $ 60

1. Define the term 'break-even'.

2. Explain why break-even analysis is of reduced value to a multi-product firm?

3. Use the figures above to construct a break-even chart showing the minimum number of units that
must be sold for the company to break even. Fully label your diagram.
4. Analyse the factors that any business should take into consideration before using break-even
analysis as a basis for decision making.

Answer:

1. Definition of 'Break-even'

Break-even is the point at which total revenue equals total costs (both fixed and variable), meaning
the business makes no profit and no loss. It indicates the minimum number of units a company must
sell to cover all its costs.

2. Why Break-even Analysis Has Reduced Value for Multi-product Firms

Break-even analysis assumes a single product or a constant sales mix, which is rarely true for multi-
product businesses. Here's why it's less useful in that context:

 Different contribution margins: Each product may have a different selling price and cost
structure, making a single break-even point inaccurate.

 Varying demand: Changes in the demand mix can distort the accuracy of the break-even
figure.

 Complex calculations: It becomes more complicated to calculate a weighted average

contribution margin.

 Less precision in planning: Decisions based on break-even may not reflect the actual
profitability of individual products.

3. Break-even Chart Calculation and Construction

Given:

 Direct Labour per Unit = $22

 Direct Materials per Unit = $12

 Variable Overheads per Unit = $6

 Fixed Costs = $400,000

 Selling Price per Unit = $60

Step 1: Total Variable Cost per Unit

VC = 22 + 12 + 6 = $40

Step 2: Contribution Margin per Unit

CM = 60 – 40 = $20

Step 3: Break-even Point (units)

Question 4

The Sherston Brick Company manufactures a standard stone block for the building industry. The
production capacity for the year is 100,000 standard blocks. The selling price per block is $1.60,
variable costs are $0.60 per brick and fixed costs are $60,000 per annum.

Determine:

1. The break-even point in terms of sales revenue and output.

2. The margin of safety if sales amount to 90,000 bricks in the year.

The market for blocks becomes much more competitive, and SBC reduces its price to $1.50 per brick.
Sales still decline to 80,000 bricks, whilst costs rise relentlessly. Variable costs rise to $0.66 per brick
and rises in business taxes and other contributions increase fixed costs to $80,000 per annum.

3. Is the firm still profitable?

Answer:

1. Break-even Point (Initial Situation)

Given:

 Selling Price per Block = $1.60

 Variable Cost per Block = $0.60

 Fixed Costs = $60,000

Step 1: Contribution Margin per Unit

CM = 1.60 − 0.60 = $1.00

Step 2: Break-even Output (units)

Step 3: Break-even Revenue

Break-even revenue = 60,000 × 1.60 = $96,000

✅ Answer:

 Break-even output = 60,000 bricks

 Break-even revenue = $96,000

2. Margin of Safety (at 90,000 bricks sold)

MOS (units) = 90,000 − 60,000 = 30,000 bricks

MOS (revenue) = 30,000 × 1.60 = $48,000

✅ Answer:

 Margin of Safety = 30,000 bricks, or $48,000, or 33.33%

3. New Situation: Is the firm still profitable?

New Data:

 Selling Price = $1.50

 Variable Cost = $0.66

  Fixed Costs = $80,000

 Units Sold = 80,000

Step 1: New Contribution Margin per Unit

CM = 1.50 − 0.66 = $0.84

Step 2: Total Contribution

Total CM = 80,000 × 0.84 = $67,200

Step 3: Profit/Loss

Profit (Loss) = 67,200 − 80,000 = -$12,800

❌ Answer:

 The firm is not profitable. It is making a loss of $12,800 under the new conditions.

Question 5

Windy Sails Limited has prepared the following cost analysis for 6 months of trading.

Sales (sets) 1,800

Price $850 per set

Materials costs $150 per set

Labour costs $150 per set

Other variable costs $150 per set

Overheads $600,000 for

6 months
operation

1. Draw the break-even chart for the company for the 6-month period.

2. Determine the break-even quantity, and confirm this by calculation.

3. Identify the firm's margin of safety for the period.

4. Calculate the profit made during the period?

5. Evaluate the use of break-even analysis to a company within its decision-making procedures.

Fully label your diagram.

Answer:

Given Data (6-month period):

 Sales Volume = 1,800 sets

 Selling Price = $850 per set

  Variable Costs per Set:

o Materials = $150

o Labour = $150

o Other = $150

o Total Variable Cost = $450 per set

 Fixed Costs (Overheads) = $600,000

1. Break-even Chart

Will be created shortly, but first, I’ll calculate the key values to include on the chart:

2. Break-even Quantity (units)

Step 1: Contribution Margin per Set

CM = Selling Price − Variable Costs = 850 – 450 = $400

Step 2: Break-even Output

3. Margin of Safety

MOS (units) = Actual Sales − Break-even Sales = 1,800 − 1,500 = 300 sets

4. Profit Made During the Period

Total Contribution = 1,800 × 400 = $720,000

Profit = Total Contribution − Fixed Costs = 720,000 − 600,000 = $120,000

5. Evaluation: Use of Break-even Analysis in Decision-Making

✅ Advantages:

 Simple to use and understand for estimating required sales levels.

 Helps determine feasibility of pricing and cost control strategies.

 Aids in setting sales targets and identifying margin of safety.

 Useful for what-if analysis when costs or prices change.

⚠️Limitations:

 Assumes all units are sold — no inventory buildup.

 Ignores market factors like demand variability and competition.

 Assumes fixed and variable costs remain constant, which may not hold over different
scales of production.

 Less useful for multi-product firms with varying cost structures.

Question 6

Provision plc makes luxury hampers for sale in a chain of high-class department stores. The following
financial information is available:

Wholesale price $80 per hamper

Labour and material costs $15 per hamper

Bought-in components $25 per hamper

Overheads $800,000 per year

Current output and sales are set at 30,000 hampers per year, though the firm has the capacity to
produce 50,000 hampers per year.

1. Calculate the break-even quantity for the firm.

2. Draw and fully label the break-even chart for the business.

3. Identify the margin of safety.

4. Calculate the level of profit the firm is making.

Sales go well, but the buyer puts pressure on Provision to reduce its prices. In the following financial
year Provision expects sales to reach 40,000, but at a price of $75 per hamper. Labour and materials
costs, and bought-in items are expected to rise in price by 15%, but Provision is planning to cut its
fixed costs by 10%.

5. Calculate how these changes will affect Provision's break-even quantity, margin of safety and
profitability.

Answer:

Given:
Current situation:

 Selling price = $80

 Labour and materials = $15

 Bought-in components = $25

 Fixed overheads = $800,000

 Current output = 30,000 hampers

 Max capacity = 50,000 hampers

1. Break-even quantity

Step 1: Total Variable Cost per unit:

15 + 25 = $40
Step 2: Contribution Margin per unit:
80 – 40 = $40
Step 3: Break-even quantity:

2. Break-even Chart
This chart shows:
 X-axis = number of hampers (0 to 50,000)
 Y-axis = dollars ($0 to $4,000,000)
 Lines:
o Fixed costs = horizontal line at $800,000

o Total revenue = starts at 0, goes up with slope of $80/unit

o Total cost = starts at $800,000, goes up with slope of $40/unit

o Break-even point = where Total Revenue = Total Costs (at 20,000 units)

o Current output line at 30,000 units

o Profit zone = between 20,000 and 50,000

o Margin of safety area = 10,000 units between 30,000 and 20,000

3. Margin of Safety
MOS (units)=30,000−20,000=10,000 hampers
4. Profit at 30,000 units
Total Contribution=30,000×40=$1,200,000
Profit=1,200,000−800,000=$400,000
5. Changes in Financial Year
New Data:
 New price = $75
 Cost increases:
o $15 + 15% = $17.25 (labour/materials)

o $25 + 15% = $28.75 (components)

o Total Variable Cost = $17.25 + $28.75 = $46.00

 Fixed cost reduction:

o $800,000 - 10% = $720,000

 New sales volume = 40,000 hampers

Step 1: New Contribution Margin
CM = 75 – 46 = $29
Step 2: New Break-even Output
Step 3: Margin of Safety
MOS (units) = 40,000 − 24,828 = 15,172 hampers
Step 4: New Profit
Total CM = 40,000 × 29 = $1,160,000
Profit = 1,160,000 − 720,000 = $440,000
Summary of Changes:

Metric Before After Change

Break-even output 20,000 24,828 +4,828 units

Margin of safety (units) 10,000 15,172 +5,172 units

Profit $400,000 $440,000 +$40,000

Question 7

Woodturn Ltd. makes a television table that sells for $50 per unit. It has variable costs of $30 per unit
and incurs fixed costs of $100,000 per period. Construct the break-even chart for this operation and
determine the sales value that the firm will have to reach if it is to make $20,000 profit per period.

Fully label your diagram.

Answer:

Given:

 Selling Price per unit = $50

 Variable Cost per unit = $30

 Fixed Costs per period = $100,000

 Target Profit = $20,000

✅ 1. Contribution Margin per unit:

CM=50−30=$20

✅ 2. Break-even Quantity:

✅ 3. Sales value required to achieve $20,000 profit:

📈 Break-even Chart Details:

Axes:

 X-axis: Units sold (0 to 7,000)

 Y-axis: Dollars (0 to $350,000)

Lines to include:

 Fixed Costs: horizontal line at $100,000

 Total Costs: starts at $100,000, slope of $30/unit

 Revenue Line: starts at $0, slope of $50/unit

 Break-even Point: at 5,000 units, $250,000 revenue

 Profit Target Point: at 6,000 units, $300,000 revenue

 Loss zone: from 0 to 5,000 units

 Profit zone: above 5,000 units

Question 8

Bremend Ltd manufactures a computer stand. It has fixed costs of $500,000 and each stand sells for
$120, with a variable cost of $70 per unit. The factory has a maximum capacity of 20,000 units and it
anticipates selling 15,000 units each period. Construct the break-even chart for the business, showing
the break-even point, and the margin of safety.

Fully label your diagram.

Answer:
Here is the fully labeled break-even chart for Bremend Ltd:

 ✅ Green line: Total Revenue

 🔴 Red line: Total Cost (Fixed + Variable)

 🔵 Blue dashed line: Fixed Cost ($500,000)

 ⚫ Black point: Break-even point at 10,000 units / $1.2 million

 🟨 Yellow shaded area: Margin of Safety (5,000 units, from 10,000 to 15,000 units)

Question 9

Sibon plc manufactures soft toys for the European market. The costs incurred by the firm are as
follows:

Materials (per toy) 5

Wages (per toy) 4

Packaging (per toy) 3

Rent of premises 5,000

Machinery hire 3,000

Marketing and 1,000

administration
The soft toys sell for an average price of $16. Current capacity of Sibon plc is 3000 toys per year.

Required

1. Calculate the following:

a. Contribution per toy sold

b. Break-even in units of output

c. Break-even level of sales revenue

2. Construct a break-even chart showing the break-even level of output and margin of safety.

Fully label the chart.

Answer:

CALCULATIONS

a. Contribution per toy sold

Contribution per unit = Selling Price - Variable Costs

 Selling Price = $16

 Variable Costs =

o Materials = $5

o Wages = $4

o Packaging = $3

o Total Variable Costs = $12

Contribution per toy = $16 - $12 = $4

b. Break-even in units of output

Break-even point (units) = Fixed Costs / Contribution per unit

 Fixed Costs =

o Rent = $5,000

o Machinery hire = $3,000

o Marketing & admin = $1,000

o Total Fixed Costs = $9,000

Break-even output = $9,000 / $4 = 2,250 toys

c. Break-even level of sales revenue

Break-even sales revenue = Break-even units × Selling Price

= 2,250 × $16 = $36,000

2. Break-even Chart Conclusion

The break-even chart is based on the following:

 X-axis: Number of units (from 0 to 3,000 units—maximum capacity)

 Y-axis: Revenue and Costs ($)

  Lines:

o Total Revenue (TR) = $16 × units

o Total Cost (TC) = Fixed Costs + ($12 × units)

o Fixed Costs (horizontal line at $9,000)

o Break-even point at 2,250 units

o Margin of Safety = Current output - Break-even output = 3,000 - 2,250 = 750

units

Question 10

John Pitman runs a small business specialising in delivering organic fruit and vegetables to the local
area. He buys from local farms and packages these together in boxes and delivers them locally. Each
box is sold for $12. He has the following costs

Direct wages are $9 per hour (30 minutes per box on average)
Fruit and vegetables are $4 per box

Other fixed costs incurred each year are as follows:

Rent of delivery van 4,500

Rent of premises 10,500

Advertising 2,000
1. Calculate the marginal cost of producing one box of vegetables.

2. State the formula for break-even in boxes (units)

3. Calculate the break-even point in boxes (unit)

Examine the factors that influence the setting of the price of a box of fruit and vegetables.

Answer:

Here's how we can construct the break-even chart for Bremend Ltd, along with the
calculations and labels for:

 Total Revenue

 Total Cost

 Fixed Cost

 Break-even Point

 Margin of Safety

🔢 Key Data

 Selling Price per Unit = $120

 Variable Cost per Unit = $70

 Fixed Costs = $500,000

 Anticipated Sales Volume = 15,000 units

 Maximum Capacity = 20,000 units

✅ Calculations

1. Contribution per Unit

Contribution = Selling Price − Variable Cost = 120 – 70 = $50

2. Break-even Point (units)

3. Break-even Revenue

10,000 × 120 = $1,200,000

4. Margin of Safety (units)

Margin of Safety = Anticipated Sales − Break-even Sales = 15,000 − 10,000 = 5,000 units

5. Margin of Safety (%)

📉 Break-even Chart

Here’s a fully labeled break-even chart showing:

 X-axis: Units sold (from 0 to 20,000)

 Y-axis: Dollars (up to $2,400,000)

 Lines:

o Fixed Costs (horizontal at $500,000)

o Total Costs (Fixed + Variable)

o Total Revenue

 Break-even point (intersection of revenue and total cost lines)

 Margin of Safety (between 10,000 and 15,000 units)