Question

NW Furniture is considering adding a cedar picnic table to the line of furniture. NW Furniture estimates that it will sell for $50 to distributors. They also estimate that the fixed costs of producing that table will be $13,000 and that the variable costs per table will be $22.

How many table will they need to sell to break even?

Find the total sales they need to break even?

Answer 1

$Contribution = Sale - Variable \space cost\\ = \$ 50 - \$22\\ = \$ 28\\ P/V Ratio = \frac{Contribution}{sales }\times 100\\ = \frac{28 }{ 50} \times 100\\ = 56\%$

A) Number of table to be sold for breakeven = Fixed cost $\div$ Contribution

$= \frac{13000 }{ 28}\\ = 464.29\\ = 464 \space tables\space ( Approx)$

B) Total sales they need to break-even = Fixed cost $\div$ PV Ratio

$= \frac{13000 }{ 56\%} = \$ 23214.29\\ = \$ 23214 \space (Approx)$