1. Suppose that marketing executives for Touché Toiletries reduced the price to $6.50 for a 3-ounce bottle of Ode d’Toade and the fixed costs were $1,100,000. Suppose further that the unit...

1. Suppose that marketing executives for Touché Toiletries reduced the price to $6.50 for a 3-ounce bottle of Ode d’Toade and the fixed costs were $1,100,000. Suppose further that the unit variable cost remained at 45 cents for a 3-ounce bottle. (a) How many bottles must be sold to break even? (b) What dollar profit level would Ode d’Toade achieve if 200,000 bottles were sold?

a) The number of bottles needed to be sold to break even is:

BEP= Fixed Cost / Unit price - Unit variable cost

b) The profit received if 200,000 bottles were sold is:

 Total Profit  = Total Revenue – Total Cost

  = (Unit Price x Quantity Sold) – Total Cost

  = (P x Q) – [FC + (UVC x Q)]

Asked on by lkballer24

2 Answers | Add Yours

ishpiro's profile pic

ishpiro | College Teacher | (Level 1) Educator

Posted on

a) According to the given formula, the number of bottles sold needed to break even is

BEP = Fixed cost/(Unit price - unit variable cost)

To calculate this, first subtract unit variable cost, 45 cents, or $0.45, from the  unit price, $6.50:

$6.50 - $0.45 = $6.05

Then divide the fixed cost, $1,100,000 by the result:

$1,100,000/$6.05= 181818.18. Rounded up, it will be 181,819 bottles needed  to be sold in order to break even.

b) Total profit = total revenue - total cost

Total revenue is the amount of money made by selling 200,000 bottles at the price of $6.50: 200,000*$6.50 = $1,300,000.

Total cost equals fixed cost plus total variable cost. Total variable cost is unit variable cost times the number of units: $.45*200,000 = $90,000.

Fixed cost is $1,100,000, so total cost is $1,100,000+$90,000 = $1,190,000.

So, total profit is $1,300,000 - $1,190,000 = $110,000.

sapna02's profile pic

sapna02 | eNotes Newbie

Posted on

1. Suppose that marketing executives for Touché Toiletries reduced the price to $6.50 for a 3-ounce bottle of Ode d’Toade and the fixed costs were $1,100,000. Suppose further that the unit variable cost remained at 45 cents for a 3-ounce bottle. (a) How many bottles must be sold to break even? (b) What dollar profit level would Ode d’Toade achieve if 200,000 bottles were sold?

a) The number of bottles needed to be sold to break even is: 

BEP= Fixed Cost /( Unit price - Unit variable cost)

Where

Fixed Cost = 1100000

Unit price = 6.50

Unit Variable cost = 0.45

Now

BEP= 1100000/(6.50-0.45)

BEP= 181,818.18 Units

BEP=  181,819 Units ( approx)

b) The profit received if 200,000 bottles were sold is: 

 Total Profit  = Total Revenue – Total Cost

 Total Profit   = (Unit Price x Quantity Sold) – Total Cost

  Total Profit   = (P x Q) – [FC + (UVC x Q)]

Where

P = 6.50

Q = 200000

FC = 1100000

UVC = 0.45

Total Profit   = (6.50*200000) - (1100000 + (0.45*200000))

Total Profit   = $ 110,000

We’ve answered 318,911 questions. We can answer yours, too.

Ask a question