Question

John and Brett have determined that the​ break-even point for their educational toys business is​ 60,000 units per month. Any units that John and Brett sell above​ 60,000 represent​ ________.

Answer 1

Answer:

Profit

Explanation:

Break-even point is the level of activity that a business must operate to make its total revenue equal to its total cost. At this point, the business makes no profit or loss. It gives an idea of the exact number of units of product to be sold in order to cover its total fixed cost.

Break-even point (BEP) is calculated as follows:

BEP (units)  = Total Fixed Costs for the Period/ (Sp - Vc)

SP- selling price, VC- variable cost

For example, if John and Brett has a total fixed cost of $120,000 per month, selling price and variable cost of $8 per unit respectively. The break-even cost is determined as follows:

BEP= 120,000/(10-8)= 60,000units.

This means that selling 60,000 units of toys monthly will make the business to make no profit or loss. We can confirm this as follows:

Profit= Total revenue - Total Variable cost - Total Fixed Cost

Profit= ($10 × 60,000) - ($8× 60,000) - $120,000

        = $600,000 - $480,000 - $120,000

Profit =   $0

But if they sell 60,500 units in a month, profit for the month will be:

Profit = ($10 *60,500) - $ ($8 × 60,500) - $120,000

        = $1000

Any units sold over and above the break-even point will represent profit