Futuristic was a newly setup firm in 2019. It is in the business of providing artwork. However, being in the business of standard art objects (non-essential items), it did not do well once it was hit by COVID-19. It has a selling price of ₹2,500 per piece and a variable cost of ₹1,000 per piece. It incurs an annual fixed cost of ₹30,00,000.
a. The manager of the business wishes to know-
b. To combat the current difficult situation, the manager plans to curb the variable expenses and bring them to ₹500 per piece. Compute the new break-even point and contribution margin. Analyze and explain the movement in contribution margin to the manager.
The break-even point is:
"BEP = 3,000,000\/(2,500 - 1,000) = 2,000" units.
The contribution margin is:
"CM = (2,500 - 1,000)\/2,500 = 0.6."
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