Finance June 2012

Some seasoning opportunities…

How many apps need to be sold to break even?

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)

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

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)