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Calcuate Break-Even Point

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JetSet Travel, Inc. (JTI) expects to become very successful in the manufacture and sales of its new luggage line. This luggage will be sold at about $300 per set.

JTI executive staff has asked you to provide them a powerpoint slide presentation which gives calculations for profit and break-even.

Assume that JTI's annual fixed costs for the luggage line are $500,000, and its variable cost per luggage set is $100.

1. Compute JTI's break-even point for the number of luggage sets and dollars of sales.

2. Suppose JTI plans to sell 3,600 luggage sets in 2008. Compute JTI's projected operating profit.

3. Suppose JTI increased its fixed costs by $100,000 and reduced variable costs per luggage set by $25. Compute its operating profit if 3,600 luggage sets are sold. Compute the break-even point. Comment on your results.

4. Next, ignore requirement 3. Suppose fixed costs do not change, but variable costs increase by 15% before deliveries of luggage sets begin for the year. Compute the new break-even point.

**please list ALL references used so that i can include them and have proper citation.

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Solution Summary

JetSet Travel, Inc. (JTI) expects to become very successful in the manufacture and sales of its new luggage line. This luggage will be sold at about $300 per set.

Solution Preview

1. Compute JTI's break-even point for the number of luggage sets and dollars of sales.

The fixed cost is FC = 500,000
The average variable cost is AVC = 100
The price is P = 300
Then the contribution margin is CM = P - AVC = 300 - 100 = $200

At the break-even point, the firm's profit = 0, and Q*(P - AVC) = FC
Then Q = FC/(P-AVC) = 500,000/(300 - 100) = 500,000/200 = 2500
Thus, the number of luggage sets is 2500.
The dollars of sales ...

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