a)
i)
BE = FC / (SP – VC) per unit (contribution)
BE is when TC = TR = 0
Output
FC
VC
333,333
5,000,000
333,3330
TC
8,333,333
TR
8,333,325
TC
18,333,333
TR
33,333,333
P/L
0
FC = 5,000,000
SP = 25
VC = 10
BE =
5,000,000 / (25 – 2)
= 333,333.333333333
ii)
Output
FC
VC
1,333,333
5,000,000
13,333,333
See photo of whiteboard on phone
15,000,000 + 5,000,000 = 20,000,000 (income needed)
20 million / 25 – 10 (profit per unit) = number of units needed to sell
= 1,333,334 (units needed to sell – rounded upwards)
b)
Stay in Touch has to spend:
1000000 (how much they sell) x 10 (the production cost per unit) + 5,000,000 (the fixed costs) = 105,000,000
Speedy costs for SiT:
13 (cost per unit) x 1,000,000 (how much they sell) = 13,000,000
Financially, it is a much better decision for SiT. However, it is questionable if using an overseas company is very
safe, as the SiT won’t have full control and be able to monitor the production process.
c) Yes, because their fixed costs remain the same anyways, and they make a profit with every phone they
produce and sell to SiT.
Fixed Costs: 5,000,000
Selling price per unit: 30
Variable cost per unit: 10
1. Calculate the break-even point
5,000,000 (FC) / (30-10 = 20) (profit per unit) = 250,000
2. How many units do they need to sell in order to make 10,000,000 profits?
10,000,000 / 20 (profit) = 500,000
250,000 (BE) + 500,000 = 750,000
3. If they sell 630,000 units, what is their profit or loss?
630,000 * 20 = 12,600,000
12,600,000 – 5,000,000 = 7,600,000
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