Break-even Analysis for Lamp Lighting Company
What is the break-even point for Lamp Lighting Company?
If the lamps are sold for £38 each and the company needs to sell 6,000 lamps to cover all costs and reach the break-even point.
Break-even Point Calculation:
To calculate the break-even point, we need to determine how many lamps need to be sold to cover the total costs.
The variable cost per lamp includes the lamp switch (£6.00), lamp stand (£10.00), and bulbs (£2.00), totaling £18.00.
The total fixed overheads are £120,000.
The contribution margin per unit is calculated as the selling price per lamp (£38.00) minus the variable cost per lamp (£18.00), resulting in a contribution margin of £20.00.
By dividing the total fixed overheads (£120,000) by the contribution margin per unit (£20.00), the break-even point is determined to be 6,000 lamps.
Break-even Point Analysis:
In order for Lamp Lighting Company to cover all costs and reach the break-even point, they must sell 6,000 lamps at a selling price of £38 each.
The break-even point is reached when total revenue equals total costs, which means there is no profit or loss.
By calculating the contribution margin per unit and dividing the total fixed costs by it, Lamp Lighting Company can determine the number of lamps they need to sell to break even.
Understanding the break-even point helps businesses set pricing strategies, assess profitability, and make informed financial decisions.
By selling 6,000 lamps at £38 each, Lamp Lighting Company can cover all costs and reach the break-even point.