Question

Ritchie Manufacturing Company makes a product that it sells for $200 per unit. The company incurs variable manufacturing costs of $110 per unit. Variable selling expenses are $20 per unit, annual fixed manufacturing costs are $466,000, and fixed selling and administrative costs are $269,000 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 I Reqc Determine the break-even point in units and dollars using the equation method, the contribution margin per unit approa and the contribution margin ratio approach. a. Break-even point in units Break-even point in dollars Contribution margin per unit Break-even point in units Break-even point in dollars Reqc >

Answer 1

a) Equation Method
Selling price per unit	$ 200.00
Variable cost per Unit ($110 + $20)	$ 130.00
Fixed Cost = $466,000 + $269,000	$ 735,000.00
At BEP = Revenue = Fixed Cost + Variable Cost
Let X be the units produced
$200 X = $735,000 + $130X
X = $735,000/($200 - $130)	10,500.00	units
BEP in Units	10,500.00
BEP in Dollars = 10,500 x $200	$ 2,100,000.00
b)
Selling price per unit	$ 200.00
Less: Variable cost per Unit ($60 + $18)	$ 130.00
Contribution Margin per unit	$ 70.00
Contribution Margin ratio = $70/$200	35.00%
BEP in Units = Fixed Cost/ Contribution margin per unit = $735,000/$70	10,500.00	units
BEP in Dollars = Fixed Cost / Contribution Ratio = $735,000/35%	$ 2,100,000.00
c)
Preparing a contribution margin income statement for the break-even sales volume
Ritchie Manufacturing Company
Contribution margin income statement
Sales = 10,500 units x $200	$ 2,100,000.00
Less: Variable Cost 10,500 x $130	$ 1,365,000.00
Contribution margin	$ 735,000.00
Less: Fixed Cost	$ 735,000.00
Net Income	$ 0.00