Question

A young entrepreneur is about to set up a new firm producing protective cases for sunglasses. She calculates that the variable cost of producing each case will be € 5 and that the fixed costs of production will be €15.000 each month. She will be selling her cases at 10€ each
Complete the table below to show the fixed costs, variable costs and total costs of producing each possible level of output:

2. Can you write down and explain 2 advantages of break-even analysis?

3. What will be the situation for that entrepreneur if he sells 2.000 cases. Possible actions?

Answer 1

1.In order to predict the work of the enterprise, we compile a table:

2.Having compiled such a table, a young businessman will be able to assess how much production he needs to produce in order for his company to be break-even. Another advantage of determining break-even is the ability to predict changes in the composition and (or) structure of production capacities to achieve breakeven.

3.If the company produces 2,000 units of products, then it will receive a loss of 5,000 Euros; the break-even amount will be 3,000 units of products.