Arthur's Miniature Chocolate Dollhouses Business Break-Even Analysis
What is the break-even point for Arthur's miniature chocolate dollhouses business?
Arthur sells his dollhouses for $22 each and has a variable cost of $9 per unit. His total fixed cost is approximately $713. How many dollhouses does he need to sell to break even?
Break-Even Point Calculation:
To calculate the break-even point, we use the formula:
Break-even point in units = Fixed costs / (Selling price per unit - Variable cost per unit)
Given the data:
Selling price per unit = $22
Variable cost per unit = $9
Fixed costs = $713
Substitute the values into the formula:
Break-even point in units = $713 / ($22 - $9)
Break-even point in units = $713 / $13
Break-even point in units = 54.85
Arthur needs to sell approximately 55 miniature chocolate dollhouses to break even.
Arthur's break-even point calculation reveals that he needs to sell around 55 dollhouses to cover his fixed and variable costs. This means that once Arthur sells 55 dollhouses, he will start making a profit from each additional unit sold. Understanding the break-even point is crucial for businesses as it helps in decision-making regarding pricing strategies, production levels, and overall profitability.
In Arthur's case, knowing that he needs to sell around 55 dollhouses to break even can guide him in setting sales targets and evaluating the financial health of his business. By keeping track of his sales volume and costs, Arthur can effectively manage his miniature chocolate dollhouses business and strive for profitability.