A New Skateboard Shop: Breaking Even Calculation
How many skateboards must the new skateboard shop make and sell in order to break even?
The skateboard shop must make and sell 250 skateboards in order to break even.
Breaking Even Calculation for the New Skateboard Shop
Cost to Make each Skateboard: $30
Selling Price per Skateboard: $110
To calculate the number of skateboards needed to break even, we can use the formula:
Break-even quantity = Fixed costs / (Selling price - Cost per skateboard)
In this case, the fixed costs are $20,000, the selling price is $110, and the cost per skateboard is $30. Substituting these values into the formula, we get:
Break-even quantity = $20,000 / ($110 - $30)
Simplifying the equation:
Break-even quantity = $20,000 / $80
Break-even quantity = 250
Therefore, the skateboard shop must make and sell 250 skateboards in order to break even. This means that once they sell 250 skateboards at $110 each (covering the $30 cost per skateboard), they will have made enough revenue to cover their fixed costs of $20,000. This calculation is essential for businesses to determine when they will start making a profit. By knowing the break-even point, businesses can set realistic goals for sales targets and pricing strategies. It also helps them understand the impact of factors like cost changes or price adjustments on their profitability.
For further information on calculating the number of skateboards needed to break even, you can refer to additional resources or seek guidance from experts in financial analysis and business planning.