The paper "Break Even Price" is an outstanding example of a statistics project on macro and microeconomics. The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage (per worker) is $80, and the price of the firm’ s output is $25. The cost of other variable inputs is $400,000 per day. The firm has a fixed cost of $800,000 per day. What is the breakeven price? Is the firm breaking even, profitable, or unprofitable? Provide a 1-2 page report to management of the firm.
Be sure to show your work to support the decision you outlined in your report. Solution: This report aims at analyzing the profitability of the firm’ s output. Based on the information obtained regarding the costs incurred by the firm, the breakeven point is computed. Selling Price per unit = $ 25 Total Variable Costs: Number of units per day = 200,000 Number of workers = 50,000 Total daily wage = $ 80 per day Total salary per day = $ 80 * 50,000 = $ 4,000,000 Labour rate per unit = $ 4,000,000 / 200,000 units = $ 20 per unit Other variable costs = $ 40,000 per day Other variable costs per unit = $ 40,000 / 200,000 units = $ 0.20 per unit Total Variable costs = $ 20.20 per unit Contribution per unit = Selling Price – Variable Cost = $ 25 - $ 20.20 = $ 4.80 per unit Break Even point = Fixed Costs / Contribution per unit = $ 80,000 / $ 4.80 = 16,667 units Hence, it is essential for the firm to sell 16,667 units per day.
It is evident that the firm is making profits as it produces 20,000 units per day (assuming that all the 20,000 units are sold). The profit earned by the firm per day is computed as shown below. Profits = (20,000 – 16,667) * $ 4.80 = $ 15,998 per day Hence, at the current level of production and costs involved, the firm is profitable, provided the firm is able to sell all the 20,000 units produced per day.