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Finance June 2012
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Some seasoning opportunities…
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How many apps need to be sold to break even?
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They expect to sell 3000 copies of its weather app. What is the margin of safety?
Expected sales = 3,000Break even point = 1,250
Margin of safety = expected sales – break even point = 3,000 – 1,250 = 2,750 (sales can drop by this amount before they start to make a loss)
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Calculate the profit or loss if 3,000 Apps are sold. Show your workings and the formula used (3 marks)
Profit = Sales revenue – total costs
Sales revenue = selling price x quantity soldSales revenue = £2 x 3,000Sales revenue = £6,000
Total costs = Fixed costs + total variable costsTotal costs = £2,000 + (£0.40 x 3,000)Total costs = £3,200
Variable cost per unit
x number of apps sold
Profit = Sales revenue – total costsProfit = £6,000 - £3,200
Profit = £2,800
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Assess the extent to which break-even analysis is a valuable tool in allowing Shiftyjelly to plan the success launch of its new weather app (10 marks)