Question

Ritchie Manufacturing Company makes a product that it sells for $150 per unit. The company incurs variable manufacturing costs of $64 per unit. Variable selling expenses are $17 per unit, annual fixed manufacturing costs are $494,000, and fixed selling and administrative costs are $237,400 per year. Required Determine the break-even point in units and dollars using each of the following approaches: a. Use the equation method. b. Use the contribution margin per unit approach. c. Prepare a contribution margin income statement for the break-even sales volume. Complete this question by entering your answers in the tabs below. Req A to B Reqc Determine the break-even point in units and dollars using the equation method, the contribution margin per unit approach and the contribution margin ratio approach. a. Break-even point in units Break-even point in dollars b. Contribution margin per unit Break-even point in units Break-even point in dollars

Answer 1

Selling price per unit = $150

Variable cost per unit = Variable manufacturing costs per unit + Variable selling expenses per unit
Variable cost per unit = $64 + $17
Variable cost per unit = $81

Fixed costs = Fixed manufacturing costs + Fixed selling and administrative costs
Fixed costs = $494,000 + $237,400
Fixed costs = $731,400

Answer a.

Let breakeven point in units be x

Profit = Sales - Variable costs - Fixed costs
Profit = Selling price per unit * Number of units - Variable cost per unit * Number of units - Fixed costs
0 = $150 * x - $81 * x - $731,400
$731,400 = $69 * x
x = 10,600 units

Breakeven point in units = 10,600

Breakeven point in dollars = Breakeven point in units * Selling price per unit
Breakeven point in dollars = 10,600 * $150
Breakeven point in dollars = $1,590,000

Answer b.

Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $150 - $81
Contribution margin per unit = $69

Contribution margin ratio = Contribution margin per unit / Selling price per unit
Contribution margin ratio = $69 / $150
Contribution margin ratio = 0.46

Breakeven point in units = Fixed costs / Contribution margin per unit
Breakeven point in units = $731,400 / $69
Breakeven point in units = 10,600

Breakeven point in dollars = Fixed costs / Contribution margin ratio
Breakeven point in dollars = $731,400 / 0.46
Breakeven point in dollars = $1,590,000

Answer c.

RITCHIE MANUFACTURING COMPANY Contribution Margin Income Statement Sales (10,600 * $150) $ 1,590,000 Variable expenses (10,600 * $81) $ 858,600 Contribution margin $ 731,400 Fixed expenses $ 731,400 Net operating income