Breakeven analysis at a selling price of 4200 and a variable cost of 2900 per tonne.
| Fixed cost (million) | Contribution (per tonne) | Breakeven output (tonnes) |
|---|---|---|
| 5.0 | 1300 | 3846 |
| 8.0 | 1300 | 6154 |
| 11.0 | 1300 | 8462 |
| 14.0 | 1300 | 10769 |
If the plant's realistic annual output is 7000 tonnes, which fixed cost level is unacceptable?
Answer: C
Correct answer: 11.0 million and above
At a contribution of 1300 per tonne, a fixed cost of 11.0 million needs 8462 tonnes to break even, and 14.0 million needs 10,769 - both above the realistic output of 7000 tonnes, so the plant would lose money every year. Only the 5.0 and 8.0 million cases break even within reach.
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