How many pieces of flowers must be sold to break even if each bouquet costs P69,000?
To calculate the total number of pieces of flowers that must be sold to break even, we need to consider the fixed costs, variable costs, and selling price of each bouquet.
The fixed cost for Floreau Flower Shop is P69,000, which includes rents and miscellaneous expenses. The variable costs consist of materials cost and other expenses. The materials cost for each bouquet is P2,500 and other materials cost P650.
By using the formula Fixed cost + variable cost = total cost, we can calculate the total cost of selling one bouquet of flowers:
Total cost = P69,000 + (P2,500 + P650) = P72,150
Next, we need to calculate the contribution margin of each bouquet, which is the difference between the selling price and variable cost:
Selling price = P1,800
Variable cost = P2,500 + P650 = P3,150
Contribution margin = P1,800 - P3,150 = -P1,350
The negative result indicates that the company is making a loss on each bouquet sold. The contribution margin ratio can be calculated by dividing the contribution margin by the selling price:
Contribution margin ratio = -P1,350 / P1,800 = -0.75 (or -75%)
To determine the break-even point in units, we can use the formula Fixed cost / contribution margin (units):
Break-even point in units = P69,000 / -P1,350 ≈ 51.11 (or 52 bouquets)
Therefore, to break even, Floreau Flower Shop would need to sell 52 bouquets of flowers. However, given that the company is incurring losses on each bouquet, it needs to reassess its pricing strategy or cost structure to enhance profitability.