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Question 19.TQ.5: You are presented with the following information for Giles L...

You are presented with the following information for Giles Limited for the year to 28 February 2008:

£000
Fixed costs 150
Variable costs 300
Sales (50 000 units) 500

Required:
(a) Calculate the following:
(i) the break-even point in value terms and in units; and
(ii) the margin of safety in value terms and in units.
(b) Prepare a break-even chart.

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Break-even chart for Giles Ltd.
Giles Limited
(a) (i) Break-even point:
In value terms:

\frac{\text{Fixed costs × sales}}{\text{Contribution}} = \frac{£150 000 × 500}{(500-300)}= \underline{\underline{£375000}}

 

In units: £
Selling price per unit (£500 ÷ 50) 10
Less: Variable cost per unit (£300 ÷ 50) \underline{6}
Contribution per unit \underline{\underline{4}}
\frac{\text{Fixed costs}}{\text{Contribution per unit}} = \frac{£150 000}{4}= \underline{\underline{375000  \text{units}}}

 

(ii) Margin of safety:
In value terms:

\frac{\text{Profit × sales}}{\text{Contribution}} = \frac{£50 000 × 500}{200}= \underline{\underline{£125000}}

In units:

\frac{\text{Profit}}{\text{Contribution per unit}} = \frac{£50 000}{4}= \underline{\underline{12500  \text{units}}}

(b) Break-even chart:

 

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