Question

Sleep-tite Ltd manufactures orthopaedic mattresses which have proved to be very popular in the Irish market. The management team is considering the company's operating plan for the forthcoming year and has asked for your assistance. The budgeted selling price for each mattress is € 400. The cost of each mattress is as follows: Direct labour € 60 Direct Material € 120 Variable Production Overhead € 60 Fixed Production Costs € 900,000 Fixed Selling and Distribution Costs € 1,000,000 The number of mattresses Sleep-tite Ltd must sell in order to break-even are: Question 8 Select one: a. 4545 mattresses b. 11875 mattresses c. 6250 mattresses d. 8636 mattresses

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Answer to a math question Sleep-tite Ltd manufactures orthopaedic mattresses which have proved to be very popular in the Irish market. The management team is considering the company's operating plan for the forthcoming year and has asked for your assistance. The budgeted selling price for each mattress is € 400. The cost of each mattress is as follows: Direct labour € 60 Direct Material € 120 Variable Production Overhead € 60 Fixed Production Costs € 900,000 Fixed Selling and Distribution Costs € 1,000,000 The number of mattresses Sleep-tite Ltd must sell in order to break-even are: Question 8 Select one: a. 4545 mattresses b. 11875 mattresses c. 6250 mattresses d. 8636 mattresses

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Adonis

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104 Answers

To calculate the breakeven point, you need to determine the contribution margin per unit. Contribution margin per unit = Selling price per unit - Variable cost per unit Selling price per unit = €400 Variable cost per unit = Direct Labour + Direct Material + Variable Production Overhead Variable cost per unit = €60 + €120 + €60 = €240 Contribution margin per unit = €400 - €240 = €160 Now, divide the total fixed costs by the contribution margin per unit to find the breakeven point: Breakeven point (in units) = Total Fixed Costs / Contribution Margin per unit Total Fixed Costs = Fixed Production Costs + Fixed Selling and Distribution Costs Total Fixed Costs = €900,000 + €1,000,000 = €1,900,000 Breakeven point (in units) = €1,900,000 / €160 = 11875 mattresses So, the answer is option b. 11875 mattresses.

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