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Break Even calculated in a more realistic Approach2

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mohamad nassrallah
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6 views

Break Even calculated in a more realistic Approach2

Uploaded by

mohamad nassrallah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Break Even calculated in a more realistic Approach

The following case represent a marketing strategic plan for a plastic factory to be establish in
south of Lebanon in the first month of 2024. the following table present the machines cost and its
productivity.

prices Salvage Price per Cost per Production Depreciation


value unit unit per hour years
Machinery 1 290000 $ 30000 $ 4. 9$ 1.8 $ 115 units/h 10

Machinery 2 430000 $ 40000 $ 7.1 $ 2.8 $ 105 units/h 12


Machinery 3 546000 $ 54000 $ 11.5 $ 3.6 $ 90 units/h 12

The following tables represent the salaries expenses of the employees and miscellaneous costs

Category A Employees number


Machinery 1 12 employees + 3 supervisors
Machinery 2 14 employees + 4 supervisors
Machinery 3 18 employees + 6 supervisors
Rate per hour 10 $ for employees and 18 $ for supervisors

Category B Salary per month


General manager 4500 $
Mkt manager 2400 $
Head of finance 2300 $
Accountant 1 1000 $
Accountant 2 1000 $
Operation manager 2800 $
Engineer 1 1800 $
Engineer 2 1800 $
Secretary 750 $
cleaner 450 $

Miscellaneous Per month


cost
electricity 1500 $
telephone 500 $
internet 100 $
Water supply 150 $
Questions
1) Calculate the break-even point?

Solution

Question 1: Break-even Point Calculation

Variable Costs

1. Machinery Operating Costs:


o Machinery 1: Cost/unit = $1.8.
o Machinery 2: Cost/unit = $2.8.
o Machinery 3: Cost/unit = $3.6.
2. Labor Costs (Category A):
o Machinery 1: 12 employees × $10 + 3 supervisors × $18 = $168/hour.
o Machinery 2: 14 employees × $10 + 4 supervisors × $18 = $196/hour.
o Machinery 3: 18 employees × $10 + 6 supervisors × $18 = $276/hour.

Revenue

1. Production per hour:


o Machinery 1: 115 units/hour × 8 hours/day × 24 days/month × 12 months =
264,960 units/year.
o Machinery 2: 105 units/hour × 8 × 24 × 12 = 241,920 units/year.
o Machinery 3: 90 units/hour × 8 × 24 × 12 = 207,360 units/year.
2. Selling Prices:
o Machinery 1: $4.9/unit.
o Machinery 2: $7.1/unit.
o Machinery 3: $11.5/unit.
3. Annual Revenue:
o Machinery 1: 264,960 × $4.9 = $1,297,104.
o Machinery 2: 241,920 × $7.1 = $1,717,632.
o Machinery 3: 207,360 × $11.5 = $2,384,640.
o Total Revenue = $5,399,376.

Break-even Point Formula


BE= TOTAL FIXED COST/ Average Price (per unit) – Average Variable Cost
per Unit

Total fixed cost= cost for employee monthly salary + total annual expenses +
total annual depreciation cost

Fixed Costs

1. Salaries (Category B):


o Total monthly salary = $4500 (GM) + $2400 (Marketing) + $2300 (Finance) +
$1000 (Accountant 1) + $1000 (Accountant 2) + $2800 (Operations) + $1800
(Engineer 1) + $1800 (Engineer 2) + $750 (Secretary) + $450 (Cleaner).
o Total = $18,800 per month = $18,800 × 12 = $225,600 annually.
2. Miscellaneous Costs:
o Electricity: $1,500
o Telephone: $500
o Internet: $100
o Water supply: $150
o Total = $2,250 per month = $2,250 × 12 = $27,000 annually.
3. Depreciation:
o Depreciation = (Cost - Salvage Value) ÷ Depreciation Years.
 Machinery 1 = (290,000 - 30,000) ÷ 10 = $26,000/year.
 Machinery 2 = (430,000 - 40,000) ÷ 12 = $32,500/year.
 Machinery 3 = (546,000 - 54,000) ÷ 12 = $41,000/year.
o Total Depreciation = $99,500/year.

Total fixed cost= 225600+ 27000+ 99500= 352100

Total Variable Cost= Variable Cost material production + Variable Cost labor
per hour

Variable cost materials= 1.8 *115 +2.8*105*3.6*90/ 115+105+90=2.65

Variable cost labor = ( 12*10+3*18)+( 14*10+4*18)+


(18*10+6*18)/115+105+90=2.2

Average Price per unit= 4.9*115+7.1*105+11.5*90/115+105+90=7.56

BE= 352100/7.56-(2.2+2.65)= 129930

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