Daring Designs have developed a new aid for the elderly by aSn26mG4


									           Remember this scenario…

Daring Designs have developed a new medical aid for the elderly.
Many older people forget to take their tablets and a digital alarm
could be programmed to remind them to take their medication.
Through market research they discovered that discovered that many
people were willing to pay £3 on average for a reliable alarm with no
special features that fitted on a key ring. They believe that they can
sell 10,000 units in a year. The direct cost to them would be £1 for
the components and labour.

The annual fixed costs are £20,000. These are spread evenly
throughout the year.

Daring Designs have each invested £20,000 into the business. Sales
are spread evenly throughout the year; all payments are received
one month after the sale is made. Direct costs are paid in the month
in which they are incurred.
   1. A
Calculate the breakeven point for the product.
Answer for Breakeven
The basis for the formula is:

Fixed costs (£)
Selling price (£) – variable costs (£)

Medication alarm
Contribution (£) = £3 (Selling Price) minus £1 (Variable Costs) = £ 2

Break Even =      Fixed Costs (£)
                  Contribution per Unit (£)

Break Even (Units) = £2083 = 1,042 units
                     £ 2

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