Break-Even Point

Holly buys a hot dog stall for £360. In addition she has to pay a fixed charge of £200 to the local council to secure her pitch. She plans to sell her hot dogs at £1 each and the cost of preparing each one is £0.60.

(a)  How many hot dogs will she need to sell to break even?

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(b)  She finds a supplier that can provide cheaper hot dog sausages, enabling her to save 10 p per hot dog on the preparation cost. What effect does this have on the break-even point?

Volna Appliances want to take over a competitor that makes microwave ovens. They have bid £48 m for the company and expect their offer to be accepted. The microwave ovens are sold for £85 and variable costs amount to £25 per unit.

(a)  Work out the break-even point for microwave production.

(b)  Volna plan to introduce a rationalization plan that will reduce variable costs by £6 and a price reduction of £16 to increase market share. What is the new break-even point?

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