Instructions
Enter the data into the selling price and variable costs boxes below and then press the calculate contribution button to calculate the contribution. Then enter data into the fixed costs and contribution boxes and click the break-even point button to work out how many bars Harry needs to sell to break even.
Harry Davies produces organic energy bars which he sells to local cafes, shops, leisure centres and hotels. These bars are high quality and made from local ingredients. At the beginning of the year, in January, he intends to sell each bar for £1.00. The variable cost for each bar is 60p. His fixed costs per month are £700.
In February Harry has had to purchase some new equipment which has increased his fixed costs to £1000. Enter the data into the fixed costs box below and then click the break-even point button to recalculate his new break-even point. Discuss the effect of an increase in fixed costs on Harry’s business.
In March Harry has decided to change one of his suppliers. This has resulted in a slight reduction in his variable costs to 55p. Enter the data in the variable costs box below to first recalculate the contribution and then to recalculate his new break-even point. Discuss the effect a decrease in variable costs has on Harry’s business.
Harry is considering raising his prices in order to reduce his break-even point to a similar level that it was in January. If the variable costs remain at 55p and fixed costs at £1000, what price will he have to charge to obtain a break-even output of around 1700 bars?
Discuss the usefulness of contribution in helping Harry run his business.