TD Toiletries has developed an addition to its Lizardman Col

TD Toiletries has developed an addition to its Lizardman Cologne line, tentatively named Eau de Toad Cologne. Unit variable costs are $3.25 for a 3 ounce bottle. Heavy advertising costs in the first year would contribute to an overall fixed cost figure of $900,000. If the cologne is priced $18.50 per bottle, how many bottles of Eau de Toad must be sold to break even? What is the dollar sales figure for break even?

Solution

a. Break even point 59,016 Bottles b. Break even point $ 10,91,803 Working: Break even point is the level at which company neither earns profit nor incurrs loss. a. Break even point in unit sales = Fixed Cost / Cotribution Margin Per unit = $          9,00,000 / $    15.25 = 59,016 b. Contribution Margin Per unit = Sales Price per unit - Variable cost per unit = $ 18.50 - $       3.25 = $ 15.25 c. Break even point in dollar sales = Fixed Cost / Contribution Margin Ratio = $          9,00,000 / 82.43% = $        10,91,803 d. Contribution Margin Ratio = Contribution Margin/ Sales revenue = $ 15.25 / $    18.50 = 82.43%