EBM N4 | Calculate the break-even turnover

EBM N4 | Calculate the break-even turnover

Sihle runs a bookshop, called Rose Bookshop, in a busy shopping centre. There are three slow-moving products at the shop and she wonders how she can change these products into cash. The three products are Xhosa storybooks, novels and Church Thymes. The cost price of the Xhosa storybooks, novels and Church Thymes amount to R50, R75 and R35 respectively. She sells the Xhosa storybooks for R75, the novels for R90, and the Church Thymes for R50. The Xhosa storybooks, novels and Church Thymes amount to 45%, 35% and 20% of total sales respectively. The fixed costs and variable costs per month amount to R1 500 and R400 respectively.

Question: Calculate the break-even turnover if she wants to make a profit of R600.

Step 1: Understand the Formula

To calculate the break-even turnover with a profit target, we use the following formula:

Break-even Turnover = (Fixed Cost + Profit Target) / Weighted Gross Profit %

Where:

• Fixed Cost = R1,500
• Profit Target = R600
• Weighted Gross Profit % = 27%

Step 2: Calculate the Total (Fixed Cost + Profit Target)

First, calculate the sum of fixed costs and the desired profit:

Fixed Cost + Profit Target = 1,500 + 600 = 2,100

Step 3: Apply the Formula

Now, we use the formula to calculate the break-even turnover:

Break-even Turnover = 2,100 / (27 / 100) = 2,100 / 0.27

Step 4: Calculate the Result

The result is:

Break-even Turnover = 7,777.78

Final Answer:

The break-even turnover to achieve a profit of R600 is R7,777.78.

This means that Sihle needs to generate a turnover of R7,777.78 to cover both her fixed costs and earn a profit of R600.

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