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Conch Capital Case Study: Break-Even Cost

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The final aspect of the project we have to check is the break-even point. The break-even point is the level of sales that is necessary to cover both variable and total fixed costs, such that net operating income is equal to zero. In Year 1 and Year 2, because of introducing new PDA, there have loss sales on existing PDA. So, Conch uses the average method to calculate the break-even point. After calculation, the profit per unit for Year 1 and Year 2 is $138.58 and $161.58. The fixed cost is $4,700,000. The break-even point for Year 1 and Year 2 is 33,916 units and 29,088 units. It means that in Year 1, Conch Republic must sell at least 33,916 units of PDA to cover the fixed cost. After selling 33,916 units of PDA, Conch Republic can earn $138.58 for each PDA sales on Year 1. For year 2, Conch Republic must sell at least 29,088 units of PDA to cover the fixed cost. Conch Republic can get profit for $161.58 for each unit sales when the unit sales exceed 29,088 units. …show more content…
The selling price is $360 per unit, variable cost is $155 per unit and the fixed cost is $4,700,000 per year. After calculation, the break-even point is 22,927 units. It means that Conch Republic must sell at least 22,927 units of PDA to cover the fixed cost and gain the profit. After selling 22,927 units of PDA, each PDA been sells, Conch Republic can earn $205. The break-even point is decline is because in Year 1 and Year 2 Conch need to cover the loss sales of the existing PDA. In Year 1, Conch Republic need to cover more loss sales than Year 2, so the break-even point of Year 1 is higher than Year 2. For Year 3, Year 4 and Year 5, it does not need to cover loss sales of existing PDA, so that the break-even point remains

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