# 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)]

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### 2 Answers

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.**

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**