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September 5th, 2010 admin

Help with break even problem please?

I don;t understand this question and how to do it..

Coffee Beans-Report for month of August
Volume-Kilograms 3200
Sales revenue $144,000
Variable costs (48,000)
Fixed costs (66,000)
Profit $30,000

Management decided to promote coffee beans sales during the month of October. They considered two options that could boost October sales to 4000 kilograms.
1. Spend $1200 on in-store displays and reduce the selling price by 20%
2. Maintain the current selling price and advertise extensively through all media. The cost would be $36000.

For each promotion determine the sales volume required in October to break-even

and please explain how you did it, Thanks so much
Thanks Jun Agruda but the way you did it is REALLY complex and I don’t understand it all

1st promotion: break-even volume (kg)—x:
x(1 – 0.2)($144,000/3,200) = $66,000 + $1,200 + x($48,000/3,200)
0.8x($45) = $67,200 + $15x
$36x – $15x = $67,200
21x = $67,200
x = 3,200

2nd promotion: break-even volume (kg)—x:
$45x = $66,000 + $36,000 + $15x
$30x = $102,000
x = 3,400

Answer: Obviously, the 1st promotion is better because the estimated break-even volume is 3,200 kg—200 kg lower than the 2nd option which is estimated at 3,400 kg.

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