Case Study Unit 37 Business Studies

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  • Topic: Variable cost, Costs, Economics
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  • Published : March 2, 2012
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Oziel Adrián Juárez Tamez
Business and Management III
Alicia Romero
Case Study Unit 37: Carl Hurst Balti Pies
a) Calculate the contribution per batch of pies.
A:Contribution = Selling Price – Variable Cost
Contribution = 100(50p) - £20
Contribution = £50 - £20
Contribution = £30

b) How many batches would Carl need to produce in his first year of trading to break-even. A:Break-even output = Fixed costs/Contribution
Break-even output = (£2,500 + £500)/£30
Break-even output = 100 batches

c) How much profit would Carl make if he sold 55,000 pies in his first year? A:Profit = Total Revenue – Total Cost
Profit = (price x quantity sold) – (fixed cost +variable cost)
Profit = (50p x 55,000) – (£3,000 + £20)
Profit = (£27,500) – (£3,020)
Profit = £24,480

d) In the second year of trading the landlord raised the lease for the kitchen unit to £4,500 per year. Carl responded to this by raising the price of his pies to 70p each. What effect would this have on the break-even level of output? A:Break-even output = Fixed Costs/Contribution

Break-even output = £5,000/((100(70p))- £20)
Break-even output = £5,000/£50
Break-even output = 100 batches

What Carl did here was to increase the price of his batches of pies to achieve the same break-even point he had before the increase in leasing. This increase in price balances the break-even output equation so that the output can be the same.

e) To what extent will break-even analysis be useful to Carl Hurst? A:There are many ways in which a break-even analysis can be useful to Carl; for example, this helps him see how much it has to sell of a product line to arrive to zero loss and zero profit (break-even). Also, if the business is brand new or it is being taken to other parts of the world or country, such as in this case, it may calculate how much it needs to sell primarily to avoid having a loss. It also can be useful for determining if it is cheaper to make...
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