Helena Itd designs and sells wooden picture frames. The fixed cost of warehouse rent totals E1000 Each frame requires materials that cost E20 Each frame requires 2 hours to make, costing ￡10 per hour in labour costs. Once ready for sale each frame is sold to a wholesaler for E45 What is the Break Even Point in number of frames for the business? 20 frames None of the options. 200 frames 25 frames

Question

Helena Itd designs and sells wooden picture frames. The fixed cost of warehouse rent totals E1000 Each frame requires materials that cost E20 Each frame requires 2 hours to make, costing ￡10 per hour in labour costs. Once ready for sale each frame is sold to a wholesaler for E45 What is the Break Even Point in number of frames for the business? 20 frames None of the options. 200 frames 25 frames

Answer 1

## Step 1: Variable Cost per unit = £20 + £20 =

## Step 2: Contribution Margin per Unit = £45 - £40 = £5## Step 3: BEQ = £1000 / £5 = 200 framesTherefore, the break-even point (in terms of number of frames) for the business is 200 frames.

Answer 2

## Step 1: Determine the variable cost per unit. This is calculated by adding the cost of the materials for each frame (which is £20) to the labour cost of manufacturing each frame. The labour cost amounts to £20 (since it requires 2 hours to make each frame, and every hour costs £10).## Step 2: Calculate the contribution margin per unit.This is calculated by subtracting the variable cost per unit from the selling price per unit. ### **Formula: Contribution Margin per Unit = Selling Price - Variable Cost**## Step 3: Determine the Break-Even Quantity (BEQ).This represents the number of units needed to sell to cover all costs and avoid a loss or make a profit. It is calculated by dividing the total fixed cost by the contribution margin per unit. ### **Formula: BEQ = Fixed Cost / Contribution Margin per Unit**

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