MARKETING PRINCIPLES

MKTG 305

Break-even Assignment

Often a firm will calculate the break-even point for a price. That is, if we set the price at $X, then how many units will we need to sell to cover costs (that is, our break-even point). Work through the following data and questions to gain a better understanding of this approach.

QUESTIONS

1. Start by completing the above table under the assumption that the product will be sold for $30. (It will be easiest to use Excel to complete the table.) How many units need to be sold to break-even at a product price of $30?

2. Now recalculate the table under the assumption that the product will be sold for $15. How many units need to be sold to break-even at a product price of $15?

3. What do you think you would set first: the sales target or the price? Why?

No. of Units

Allocated Fixed Costs

Variable Cost/Unit

Total Production

Cost

Average Unit Cost

Unit Price

Total Sales Revenue

Gross Profit

500

$10,000

$10

1,000

$10,000

$10

1,500

$10,000

$10

2,000

$10,000

$10

2,500

$10,000

$10

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