Reference no: EM132921723

Gerry runs a small clothing manufacturing company. As a responsible business owner, he wants to ensure he maintains a full understanding of his business financials at all times during the operation of his company.

Gerry completed a break-even analysis last year but some costs and prices have changed and he wants to ensure he maintains an accurate understanding of his monthly break-even point for his items. Gerry is specifically interested in next year's break-even point for the model of winter coat he sells. (For this assignment, assume this is the only product Gerry manufactures and sells.)

In the upcoming year, Gerry plans to sell each of his winter coats for $200 and he believes he can manufacture a maximum of 5,500 a year.

For every 20 coats he makes, Gerry calculates that his materials will cost him as follows: $800 for outer shells; $1,000 for insulation; $500 for linings; $300 zippers, buttons and labels.

Gerry's manufacturing facility is leased for $50,000 annually, plus a $150 monthly machine maintenance fee. He also pays $600 property + liability insurance every six months.

On graph paper (on Page 3, below, or similar), build a MONTHLY break-even analysis chart, being sure to:

1. Calculate (and show your calculations for) the Break-Even Point:

a. In units

b. In sales dollars

c. As a percentage of capacity

2. Name and label the x and y axes appropriately.

3. Chart and label the fixed cost function, the total cost function and the total revenue function.

4. Indicate the variable cost area.

5. Plot the break-even volume amount line and the break-even sales amount line.

6. Indicate the break-even point.

7. Indicate the area of loss and the area of profit.