Business – 9.3 Operations strategy – Operations planning and CPA | e-Consult
9.3 Operations strategy – Operations planning and CPA (1 questions)
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Contribution per unit = Selling price – Variable cost = £25 – £15 = £10.
Break‑even point (units) = Fixed costs ÷ Contribution per unit = £40,000 ÷ £10 = 4,000 units.
Break‑even sales value = Break‑even units × Selling price = 4,000 × £25 = £100,000.
Implications for pricing strategy:
- If the company wishes to reduce the break‑even volume, it could consider raising the selling price (if market conditions allow) or reducing variable costs to increase contribution margin.
- Alternatively, spreading fixed costs over a larger sales volume (e.g., through marketing to increase demand) will also lower the unit break‑even requirement.
- However, any price increase must be weighed against potential demand elasticity; a higher price may reduce sales volume, offsetting the benefit of a higher contribution per unit.