{"id":185028,"date":"2025-01-22T04:41:01","date_gmt":"2025-01-22T04:41:01","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=185028"},"modified":"2025-01-22T04:41:03","modified_gmt":"2025-01-22T04:41:03","slug":"martins-ltd-produce-high-quality-kitchen-titles","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/01\/22\/martins-ltd-produce-high-quality-kitchen-titles\/","title":{"rendered":"Martin’s ltd produce high quality kitchen titles"},"content":{"rendered":"\n

Martin’s ltd produce high quality kitchen titles. The firm has a modern factory which can produce a maximum output of 90 000 boxes of tiles a year ear when the factory is operating at full capacity. Last year the firm produced and sold 80 000 boxes at a price of $12 per box. The firm incurred the following costs. Annual fixed costs (overheads) were $240 000 whilst the variable cost of producing each box was \u00a38. (i) Draw a break-even chart to illustrate last year’s financial situation (ii) State and illustrate the break-even point on the chart you have just drawn.(iii) Identify the firm’s break-even revenue.<\/p>\n\n\n\n

The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n

To analyze Martin’s Ltd’s financial performance, we’ll construct a break-even chart, identify the break-even point, and determine the break-even revenue.<\/p>\n\n\n\n

i) Break-Even Chart:<\/strong><\/p>\n\n\n\n

A break-even chart visually represents the relationship between costs, revenue, and profit at varying production levels. The horizontal axis (X-axis) denotes the number of units (boxes of tiles), while the vertical axis (Y-axis) represents the monetary values (costs and revenues).<\/p>\n\n\n\n

To create the chart:<\/p>\n\n\n\n

    \n
  1. Fixed Costs Line:<\/strong> Plot a horizontal line at $240,000, representing the annual fixed costs, which remain constant regardless of production volume.<\/li>\n\n\n\n
  2. Total Costs Line:<\/strong> Start this line at the fixed costs level ($240,000) and add variable costs ($8 per box) for each unit produced. The slope of this line reflects the variable cost per unit.<\/li>\n\n\n\n
  3. Total Revenue Line:<\/strong> Begin at the origin (0,0) and plot the revenue generated by selling each box at $12. The slope of this line corresponds to the selling price per unit.<\/li>\n<\/ol>\n\n\n\n

    The point where the Total Revenue Line intersects the Total Costs Line is the break-even point.<\/p>\n\n\n\n

    ii) Break-Even Point:<\/strong><\/p>\n\n\n\n

    The break-even point is where total revenue equals total costs, resulting in neither profit nor loss.<\/p>\n\n\n\n

    To calculate:<\/p>\n\n\n\n

      \n
    • Contribution Margin per Unit:<\/strong> Selling Price per Unit – Variable Cost per Unit = $12 – $8 = $4<\/li>\n\n\n\n
    • Break-Even Quantity:<\/strong> Fixed Costs \u00f7 Contribution Margin per Unit = $240,000 \u00f7 $4 = 60,000 boxes<\/li>\n<\/ul>\n\n\n\n

      Thus, Martin’s Ltd needs to produce and sell 60,000 boxes<\/strong> to break even. On the chart, this is the intersection point of the Total Revenue and Total Costs lines at 60,000 units.<\/p>\n\n\n\n

      iii) Break-Even Revenue:<\/strong><\/p>\n\n\n\n

      Break-even revenue is the amount of sales dollars required to cover all fixed and variable costs.<\/p>\n\n\n\n

      To calculate:<\/p>\n\n\n\n

        \n
      • Break-Even Revenue:<\/strong> Break-Even Quantity \u00d7 Selling Price per Unit = 60,000 boxes \u00d7 $12 = $720,000<\/li>\n<\/ul>\n\n\n\n

        Therefore, the firm must achieve $720,000<\/strong> in sales to break even. This value can also be determined using the contribution margin ratio:<\/p>\n\n\n\n

          \n
        • Contribution Margin Ratio:<\/strong> Contribution Margin per Unit \u00f7 Selling Price per Unit = $4 \u00f7 $12 \u2248 0.3333 (or 33.33%)<\/li>\n\n\n\n
        • Break-Even Revenue:<\/strong> Fixed Costs \u00f7 Contribution Margin Ratio = $240,000 \u00f7 0.3333 \u2248 $720,000<\/li>\n<\/ul>\n\n\n\n

          Understanding the break-even point is crucial for Martin’s Ltd as it indicates the minimum sales volume needed to cover all costs. Producing and selling more than 60,000 boxes will result in a profit, while falling short will lead to a loss. This analysis aids in setting sales targets, pricing strategies, and cost management to ensure financial stability and profitability.<\/p>\n","protected":false},"excerpt":{"rendered":"

          Martin’s ltd produce high quality kitchen titles. The firm has a modern factory which can produce a maximum output of 90 000 boxes of tiles a year ear when the factory is operating at full capacity. Last year the firm produced and sold 80 000 boxes at a price of $12 per box. The firm […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-185028","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/185028","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=185028"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/185028\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=185028"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=185028"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=185028"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}