Question
Activity 4: (this calculation is important for your test) Olukale makes organic hair dye products for men sold in 100ml tubes for a price of ￡20 per tube. The business pays a monthly rent of ￡2,000 Each 100ml tube requires material that costs ￡4.50 Per 1 hour of labour, costing f15,2 tubes can be produced What is the breakeven point in number of tubes for the business?
Answer
4.5
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Queenie
Master · Tutor for 5 years
Answer
First rearrange equation by bringing like terms together:£20Q - £12Q = £2000 (transposition)=> £8Q = £2000 (simplification)Therefore the Breakeven point (Q) will be £2000 / £8, which basement values into Q = 250 tubes
Explanation
The breakeven point in a business is the point at which total cost (fixed and variable) equals total revenue. Beyond this point, the business starts making profit. Before this point, it is making a loss. In this question, the fixed cost is the monthly rent that the business pays which is £2,000. The variable cost per tube is the material cost (£4.50) and the labour cost. The per unit as hour of labor costs £15 and 2 tubes can be produced. Thus for each tube, the labor cost is £15/2 = £7.5. Combining these, the total variable cost per tube is £4.5 (material) + £7.5 (labor) = £12.Each tube of hair dye is sold for £20. The breakeven quantity would be when the total revenue equals the total cost. If the quantity of tubes sold is represented as Q then, => the total revenue = £20 * Q=> and the total cost = fixed costs (£2,000) + variable costs per product * quantity=> £2,000 + £12 * QTo get the breakeven point, Total cost (TC) = Total Revenue (TR) which boils down to,=>£20*Q = £2,000 + £12*Q.As seen in both equations Q is the equilibrium amount or number of tubes.